bridge loan

noun
Updated on: 26 Jul 2017

Definition of bridge loan

  1. :  a short-term loan used to finance an enterprise, investment, or government pending the receipt of other funds

First Known Use of bridge loan

1973


Financial Definition of BRIDGE LOAN

bridge loan

What It Is

A bridge loan is a short-term, high-interest loan that provides a quick source of cash for commercial or individual needs.  It is called a bridge loan because it serves as a bridge between one period of funding and another, more permanent source of funding.

How It Works

To illustrate, suppose a company has been approved for a $1 million loan from a bank. However, this money will not be available for six months, and they are running short on cash. The company could apply for a six-month bridge loan of $50,000 to cover their expenses until the money from the $1 million loan comes through.

Why It Matters

Often, businesses and individuals find themselves in need of fast funding during an interim period while they work out access to larger amounts of funds. The bridge loan essentially "bridges" the gap between when money runs out and when more money will be received.

The cost of bridge loans is often much higher than more traditional financing methods, and they are only meant to be used in special circumstances. If a company must rely on short-term, high-interest financing to continue operations, chances are good that the company is not viable in the long run.


BRIDGE LOAN Defined for English Language Learners

bridge loan

noun

Definition of bridge loan for English Language Learners

  • : money that a bank lends you for a short period of time until you receive the money that you are getting from another source (such as from selling your house)


Law Dictionary

bridge loan

  1. see loan

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