A bridge loan is a loan that “bridges” a borrower over a temporary shortage in funds on hand. Bridge loans are normally short-term in duration, usually less than one year. These loans help the borrower with cash flow needs until a more permanent funding capacity takes effect. Because of their short-term nature and extra risk, bridge loans often have higher interest rates than normal loans. Both individuals and corporations use bridge loans. For instance, ABC Corporation is planning to build a new production facility. ABC will issue $20 million in corporate bonds to pay for the new factory. Due to favorable conditions in the construction market, ABC can get a better price on its factory if it starts immediately. But it will take ABC six months to issue the bonds. In order to start immediately, ABC approaches XYZ Bank for a bridge loan it can use to secure funds to start the construction. Once ABC sells its bonds, it will use part of the proceeds to pay off the XYZ Bank bridge loan. Individuals often use bridge loans when selling and buying houses. If Juanita found a new home she wants to purchase, but has not yet sold her existing home, she can get a bridge loan, secured by her existing home, that she can then use as a down payment for the new home she wants to purchase. When she sells her old house, part of the sales proceeds will be used to pay off the bridge loan.