Bridge Loan

Bridge loans provide temporary funding when timing does not line up. They are usually repaid within months, often in one lump sum, and typically carry higher interest rates and fees than long-term loans because of their short duration and higher risk.

In property, a homeowner buying a new house before selling their current one might take a bridge loan, secured on the existing home, to fund the purchase, repaying it when the old house sells.

In business and acquisitions, companies use bridge loans to complete a deal quickly, then refinance with bonds or longer-term loans. For example, a company acquiring a competitor might borrow 2,000,000,000 through a bridge facility to pay at completion, then issue bonds a few months later to repay it.

The main risk is that the expected refinancing or sale takes longer than planned or falls through, leaving the borrower facing expensive debt or difficulty repaying it.