A bridge loan is a short-term loan. The period of a bridge loan is anywhere from 2 weeks to 3 years. The term bridge loan derives its name from the fact that the loan acts as a “bridge” between the stages of financing for a company. Bridge loans are common in real estate and also in corporate finance where they are a transitional form of capital leading to a long term, take out financing.
What is a bridge loan used for? A bridge loan can be used for acquisitions, refinancing and also buy-outs.
Bridge loans are used when closing a deal, often when there is a need to close quickly. Bridge loans ensure the required financing will be there at closing.
What is a bridge loan convenient for? If a company is in need of quick financing and are looking for short-term solutions to finance necessities, bridge loans are a good option. Bridge loans are flexible loans and can give a company more time when closing a time sensitive deal. Bridge loans come with a high amount of risk due to the fact that bridge loans provide financing for a very short amount of time. The borrower must ensure that there will be a timely refinance option for the bridge loan at maturity. If the bridge loan is not taken out in accordance with the schedule, the consequences can be negative for the borrower. Bridge Loans are provided by high net worth individuals as well as finance companies, hedge funds and other private lenders.