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. Hard Money Loan

    A loan of "last resort" or a short-term bridge loan. Hard money ...
  4. Trust Receipt

    Notice of the release merchandise to a buyer from a bank, with ...
  5. Funding Gap

    The amount of money needed to fund the ongoing operations or ...
  6. Financing

    The act of providing funds for business activities, making purchases ...
RELATED FAQS
  1. What price-to-book ratio is considered average in the chemicals sector?

    You can use Microsoft Excel to calculate the loan-to-value ratio if you have the mortgage amount and appraised value of a ... Read Full Answer >>
  2. Why is it beneficial to innovate financial models and techniques used in quantitative ...

    The majority of consumers use credit cards at some point during their lifetimes to finance major purchases, earn rewards ... Read Full Answer >>
  3. How can I use quantitative analysis to evaluate investment decisions if I don't have ...

    While there are a few legitimate companies advertising that they can consolidate credit card debt, most are illegitimate ... Read Full Answer >>
  4. What are some common models that practitioners use in quantitative analysis of equity ...

    Credit cards can be a helpful component in reaching a financial goal or financing some of life's bigger expenses. Carrying ... Read Full Answer >>
  5. Why do long-term care insurers require the loss of two Activities of Daily Living ...

    A merchant would use a banker's acceptance for several reasons, particularly when engaged in international trade. One of ... Read Full Answer >>
  6. How can I use the correlation coefficient to predict returns in the stock market?

    Simple interest is most commonly seen in short-term loans, such as those from payday lenders or pawn shops. You might see ... Read Full Answer >>
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

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
  3. Economics

    Venezuela Teeters On Edge As Oil Revenues Shrink

    Low oil prices have drastically revised the economic status quo -- dealing a destabilizing blow to oil-exporters like Venezuela due to falling oil revenue.
  4. Economics

    Does A Junk Rating Reflect Russia's Fundamentals?

    Moody’s, like other credit rating agencies, has downgraded Russia’s sovereign debt rating to non-investment grade, but does this reflect Russia's economy?
  5. Stock Analysis

    Find The Right Discount Rate Amid Post-2007 Risks

    OIS discounting has become part of standard valuation techniques, in a market in which there is more uncertainty and less proxies for the risk-free rate.
  6. Trading Strategies

    Eyeing a Loan? Consider Skipping the Banks

    Peer-to-peer lending platforms, such as Lending Tree, Lending Club and Prosper, offer borrowers newfound leverage. Here's a look.
  7. Entrepreneurship

    Funding A Startup When Bank Loans Aren't Possible

    There are alternative ways to fund your business start-up when it is not possible to secure a bank loan, but consider the costs and risks of each option.
  8. Economics

    Will Alex Tsipras Change The European Economy?

    A debt default and a Euro exit by Greece's leaders would likely cause more harm to Greece's economy than to the EU, of which Greece is just a small part.
  9. Trading Strategies

    American Express: Headwinds and Tailwinds

    Any investors considering a position in American Express need to know these important facts.
  10. Stock Analysis

    This Is An Alternative Investment You Didn't Know

    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.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center