What is Bridge Financing and how does it work?

What is Bridge Financing?

Bridge financing—also known as a bridge loan or gap financing—is a short-term loan designed to provide quick access to capital while waiting for long-term financing. These loans “bridge the gap” between a company’s immediate funding needs and a future financial event, such as securing permanent financing or completing a business transaction.

Bridge loans are typically secured by collateral, such as real estate, inventory, or business assets, and have higher interest rates due to their short-term nature and quick approval process.

How Does Bridge Financing Work?

1. Loan Structure

Bridge loans can be structured in two ways:

• Open bridge loans – These loans do not have a fixed repayment date but require the borrower to pay off the loan within a reasonable timeframe.
• Closed bridge loans – These have a set repayment date, often tied to an expected financial event (e.g., sale of a property, securing permanent financing).

2. Loan Terms & Costs

• Short-term duration: Usually 6 months to 3 years.
• Higher interest rates: Rates typically range from 8% to 15%, depending on risk and lender terms.
• Collateral-backed: Often secured by real estate, equipment, or company assets.
• Quick approval process: Funds can be available in days or weeks compared to traditional loans that take months.

3. Repayment Options

Bridge loans can be repaid in different ways, including:

• Lump sum at the end of the term
• Monthly interest-only payments with a balloon payment at maturity
• Refinancing into long-term debt once permanent financing is secured

When is Bridge Financing Used?

Bridge loans are commonly used in various business scenarios, including:

1. Real Estate Transactions

✅ Buying a new property before selling an existing one

✅ Covering costs while waiting for long-term mortgage approval

✅ Financing property renovations before securing a traditional loan

2. Mergers & Acquisitions

✅ Funding a company acquisition while waiting for permanent financing

✅ Covering operational costs during an ownership transition

3. Business Expansion & Working Capital

✅ Filling cash flow gaps for payroll, inventory, or unexpected expenses

✅ Expanding operations while waiting for venture capital or equity investment

4. Debt Consolidation or Restructuring

✅ Paying off short-term obligations before securing long-term financing

✅ Preventing liquidity crises by quickly accessing funds

Pros and Cons of Bridge Financing

Advantages:

Fast Access to Capital

Bridge loans are approved and disbursed quickly, making them ideal for urgent funding needs.

Flexible Repayment Terms

Borrowers can often negotiate terms that align with their expected inflow of funds.

Supports Business Growth

Helps businesses seize time-sensitive opportunities without delays.

Disadvantages:

Higher Interest Rates

Due to their short-term nature, bridge loans come with premium rates compared to traditional loans.

Requires Collateral

Most lenders require property, equipment, or business assets as security.

Short Repayment Period

Borrowers must have a clear exit strategy to avoid financial strain.

Is Bridge Financing Right for You?

Before choosing bridge financing, ask yourself:



• Do I need short-term funding to complete a business transaction?
• Do I have a plan to secure long-term financing or another repayment source?
• Can I afford higher interest rates for a short period?

Bridge financing is best suited for businesses and investors with strong financial planning, clear exit strategies, and the ability to manage short-term debt effectively.

Secure the Right Bridge Financing with ReVera Capital

Navigating bridge financing requires expert guidance to ensure the right terms and structure for your needs. At ReVera Capital, we help businesses and investors secure customized financing solutions that align with their strategic goals.

Whether you need funding for a merger, acquisition, or real estate investment, our team is here to help. Contact us today to discuss your financing options.