Bridge Loans

Bridge loan describes a type of loan made to businesses designed to “bridge” the business from the time of the loan to some point in the near future when additional financing will be available. A bridge loan is a short term loan, usually no longer than one year, and is often used to carry a business until more long term financing is available. A bridge loan may be used to carry a business until a long term loan is in place or until a public offering can be completed. Bridge loans are available in a variety of industries and serves the same purpose regardless of its name. For example, one type of bridge loan is a bridge mortgage loan, which as the name implies, is a short term loan used to purchase or refinance real estate until more long term financing can be put into place. Because of the risk to the lender that it will take more time to secure long term financing than originally thought or that such financing will be unavailable, bridge loans usually carry substantially higher rates of interest than long term loans. Despite this higher rate of interest, a business in need of financing will often gladly pay the higher rate of a commercial bridge loan in exchange for the needed cash and the additional time to secure long term financing. Real estate bridge loans are usually available from lenders specializing in this type of loan, such as certain types of finance companies or investment funds.