A bridge loan is exactly what it sounds like — a short-term financial bridge that covers you until you secure permanent financing. It is typically repaid within 6 months to 3 years and carries higher interest rates than conventional loans.
The most common example: you want to buy a new house before selling your current one. A bridge loan gives you the down payment for the new house using your existing home as collateral. Once you sell the old house, you repay the bridge loan.
In corporate finance, companies use bridge loans to fund acquisitions, IPOs, or seasonal inventory while waiting for long-term bonds or equity to be issued. Interest rates are typically 2-4% higher than standard loans because of the short-term, higher-risk nature of the arrangement.