Bridge Financing

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DEFINITION of 'Bridge Financing'

In investment banking terms, it is a method of financing used by companies before their IPO, to obtain necessary cash for the maintenance of operations. Bridge financing is designed to cover expenses associated with the IPO and is typically short-term in nature. Once the IPO is complete, the cash raised from the offering will immediately payoff the loan liability.

BREAKING DOWN 'Bridge Financing'

These funds are usually supplied by the investment bank underwriting the new issue. As payment, the company acquiring the bridge financing will give a number of shares to the underwriters, at a discount of the issue price that equally offsets the loan. This financing is, in essence, a forwarded payment for the future sales of the new issue.

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