Bridge Financing

Bridge financing is a short-term loan or financing option used by companies or individuals to cover immediate funding needs until longer-term financing is secured or a specific event occurs. This type of financing is often used in scenarios such as mergers, acquisitions, real estate transactions, or business expansion. Bridge financing is typically more expensive than traditional loans due to its short-term nature and the higher risk involved. It is designed to "bridge the gap" between the need for immediate funds and the availability of more permanent financing.

Example

A company might use bridge financing to fund the acquisition of a competitor while waiting for the approval of a long-term loan or bond issuance to finance the deal.

Key points

• Bridge financing is a short-term loan used to cover immediate funding needs.

• Often used in scenarios like acquisitions, real estate transactions, or business expansions.

• Typically more expensive than long-term financing due to its short duration and higher risk.

Quick Answers to Curious Questions

When is bridge financing typically used?

It is used when there is an immediate need for funds, such as in mergers, acquisitions, or real estate transactions, while waiting for longer-term financing to be secured.

Why is bridge financing more expensive?

Due to its short-term nature and the higher risk involved, bridge financing typically carries higher interest rates and fees compared to traditional loans.