Bridge Loan

AAA

DEFINITION of 'Bridge Loan'

A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral such as real estate or inventory.

Also known as "interim financing", "gap financing" or a "swing loan".

INVESTOPEDIA EXPLAINS 'Bridge Loan'

As the term implies, these loans "bridge the gap" between times when financing is needed. They are used by both corporations and individuals and can be customized for many different situations. For example, let's say that a company is doing a round of equity financing that is expecting to close in six months. A bridge loan could be used to secure working capital until the round of funding goes through. In the case of an individual, bridge loans are common in the real estate market. As there can often be a time lag between the sale of one property and the purchase of another, a bridge loan allows a homeowner more flexibility.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Floor Loan

    In real estate construction, the minimum loan that a lender agrees ...
  3. Lien

    The legal right of a creditor to sell the collateral property ...
  4. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  5. Loan

    The act of giving money, property or other material goods to ...
  6. Bridge Financing

    In investment banking terms, it is a method of financing used ...
Related Articles
  1. Options & Futures

    Home-Equity Loans: The Costs

    Learn the factors to consider when comparing the different programs offered by various lenders.
  2. Credit & Loans

    What is the debt ratio for an FHA loan?

    Borrowing through the Federal Housing Administration requires individuals to provide proof of income as well as information relating to total outstanding debt.
  3. Trading Strategies

    American Express: Headwinds and Tailwinds

    Any investors considering a position in American Express need to know these important facts.
  4. Trading Strategies

    How do I use the debt ratio to decide when to invest in a company?

    Understand the calculation and interpretation of the debt ratio and how this metric is used by investors to analyze a company's financial health.
  5. Credit & Loans

    What is the key to finding your ideal mortgage?

    Learn what steps you need to take in order to locate the perfect mortgage for your budget, lifestyle and long-term financial goals.
  6. Active Trading Fundamentals

    What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing can be risky.
  7. Stock Analysis

    Investing In (And With) Lending Club

    The trick isn’t to buy the stock of the San Francisco-based LendingClub — it’s to become an investor in the loans the company wants to make.
  8. Investing Basics

    What is the difference between the gearing ratio and the debt-to-equity ratio?

    Dive deeper into gearing ratios: what are they, how are they used and why the debt to equity ratio is one of the most popular analytical gearing tools.
  9. Economics

    What is the difference between loan syndication and a consortium?

    Learn about consortiums and loan syndications, two types of multiple banking arrangements designed to finance transactions that single lenders do not handle.
  10. Credit & Loans

    What are the different types of cash advances?

    Find out the different types of cash advances along with their different features to determine which option, if any, is best for you.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center