| interim or emergency financing through a short- or medium-term loan (bridge loan). |
| bridge loan n. A short-term loan intended to provide or extend financing until a more permanent arrangement is made. |
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 Commentary
As the term implies, these loans "bridge the gap" between times when financing is needed. They are used by both corporations as well as individuals and can be customized for many different situations. For example, say 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 Links
Home-Equity Loans: The Costs
See also: Collateral, Equity, Financing, Lien, Loan, Mortgage
bridge loan