Bridge Loan
Short-term financing that covers a funding gap until permanent capital is secured.
What is Bridge Loan?
A bridge loan is a short-term financing arrangement, typically lasting 6 to 24 months, designed to provide immediate capital while the borrower arranges longer-term permanent financing. Bridge loans are most commonly used in real estate transactions—for example, to finance the purchase of a new home before selling the existing property—as well as in business acquisitions, leveraged buyouts, and commercial real estate development. Because bridge loans carry higher credit risk due to their temporary nature and dependence on a repayment event (such as a property sale or refinancing), they command significantly higher interest rates than permanent financing, often 1–4 percentage points above conventional loan rates. Lenders typically require a clear exit strategy—such as a signed purchase contract or committed refinancing term sheet—before extending bridge financing.
Example
A homeowner under contract to sell their existing home in 60 days takes out a 90-day bridge loan to fund the 20% down payment on a new home, using their existing home's equity as collateral. The bridge loan carries a rate of 8.5% versus the 6.75% permanent mortgage. When the old home sale closes, the bridge loan is repaid in full.
Source: Investopedia — Bridge Loan