What Is a Bridge Loan?

A bridge loan used for business purposes is a temporary financing facility that provides short-term funding until a permanent one is in place or until a commercial debt obligation is removed. Bridge loans range between 1-12 months, with either a single repayment often (but not always) provided at the end of the term or a series of daily, weekly, or monthly payments. Rates for this type of financing are usually in the 8-20% range but can be much higher depending on the type of bridge loan or bridge funding facility. Bridge financing is typically used for working capital purposes, operating capital while waiting for permanent SBA financing, debt repayment, purchasing of commercial real estate, and/or development of commercial real estate, but may have more specific purposes like paying a vendor, making company payroll, making a tax lien payment or completely paying-off a tax lien, accounts payable needs, purchasing inventory, or waiting to clear a purchase order. A bridge loan usually funds faster than more traditional financing — which makes it appealing to businesses that are waiting for more traditional financing to become available. But with speed in funding comes increased risk for the lender; therefore, bridge financing is generally much more expensive than more traditional types of business term loans and lines of credit.