Bridge Loan — The Dollar Dictionary

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Finance

Bridge Loan

Short-term financing used to cover an immediate cash need until longer-term financing or a specific event — like a sale or funding round — provides a permanent solution.

Bridge loans are used in real estate, corporate finance, and startup funding. In real estate, they bridge the gap between buying and selling. In M&A, they fund an acquisition while permanent debt financing is arranged. In startups, a bridge round provides cash to reach the next milestone when a company's existing runway is running low but a full funding round isn't ready.

The cost of bridge financing is higher than permanent financing — rates can be 8-15% or more annually, plus origination fees. This reflects the short-term nature and higher risk. Bridge loans that don't get repaid on schedule (because the anticipated event doesn't happen) can become very expensive very fast. They should only be used when the repayment source is highly certain.

It's the financial equivalent of a friend spotting you $500 until payday. You know money is coming — from a property sale, a fundraise, or a contract payment — but it hasn't arrived yet. A bridge loan spans that gap, letting you move forward instead of waiting.

Real world: A homeowner buying a new house before selling their old one might take a bridge loan secured against the existing home's equity. They use it as a down payment on the new property. When the old home sells 60 days later, the bridge loan gets repaid in full. Without the bridge, they'd have to sell first — potentially at a worse price or missing the new property entirely.

💡 A bridge loan buys time when you know money is coming but hasn't arrived — it's expensive by design, so the repayment source needs to be certain before you take one on.

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