Definition of bridge loan
: a short-term loan used to finance an enterprise, investment, or government pending the receipt of other funds
First Known Use of bridge loan
Financial Definition of BRIDGE LOAN
What It Is
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
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)
Learn More about bridge loan
Seen and Heard
What made you want to look up bridge loan? Please tell us where you read or heard it (including the quote, if possible).