Bridge Loans vs. Acquisition Financing; Knowing When a Deal Needs Both

The easiest way to differentiate between bridge loans and acquisition financing is by their maturity date. Bridge loans are very short term, usually 1 year or less in maturity. Acquisition financing is much longer-term maturity, usually 4 to 6 years depending on the specific type of lender.

Bridge loans are event-driven forms of capital that are best used situationally for quick deals or as part of an integrated capital strategy. Event-driven means you can get a great deal if you move quickly, where a seller has to move an asset by a certain date. By their very nature, they are not a long-term solution but used for quick transacting.

Acquisition Financing for Long-Term Investment

Acquisition financing is capital used to fund a long-term investment, specifically acquisition of the assets or the shares of a company. Because the acquisition is strategic for the buyer, it needs a stable, patient form of capital that allows the buyer to properly integrate and grow the acquired business.

Lenders of acquisition financing are not fast-moving or quick transactors, as they need to ensure the numbers all check out and that the business is strongly differentiated for long-term success. Sometimes the window to close a deal is short and the acquisition financing provider cannot move fast enough.

Bridge financing is a good option if the buyer has a long-term take-out solution in the form of acquisition financing or an exit event locked in. The Bridge loan will be expensive, and the terms will be unforgiving, but the capital can be raised quickly.

Knowing the timelines that you need to close by is the key to implementing a bridge loan and acquisition financing solution. Buyers should start both processes at the same time, knowing that the bridge loan will be ready in under 30 days. The buyer needs to make sure the bridge loan can be repaid quickly for this approach to work with particular attention on the prepayment penalties.

Both the bridge loan and acquisition financing processes can be paralleled tracked with strong levels of transaction support.