bridge loan

A short-term loan intended to provide or extend financing until a more permanent arrangement is made.

A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral such as real estate or inventory.

Also known as "interim financing", "gap financing or a "swing loan".

Investopedia Says:
As the term implies, these loans "bridge the gap" between times when financing is needed. They are used by both corporations and individuals and can be customized for many different situations. For example, let's say that a company is doing a round of equity financing that is expecting to close in six months. A bridge loan could be used to secure working capital until the round of funding goes through. In the case of an individual, bridge loans are common in the real estate market. As there can often be a time lag between the sale of one property and the purchase of another, a bridge loan allows a homeowner more flexibility.

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1. Short-term loan to cover a home buyer's financing costs when selling one house and purchasing another. The loan provides funds to buy a new house before proceeds are available from sale of the old house.

2. In corporate finance, interim financing covering the time lag between redemption of a bond or commercial paper issue, and replacement by a new one. Bridge loans, commonly replacing short-term debt with longer term financing, are an integral part of corporate restructurings, mergers, and leveraged buy-outs. Banks and insurance companies supply funds to pay off old debts before proceeds are raised from new debt or issuance of stock. Also known as gap financing or swing loan.

3. Short-term multinational credit extended to a Less Developed Country, arranged through the International Monetary Fund and the World Bank, in anticipation of longer-term financing by private banks.

Mortgage financing between the termination of one loan and the beginning of another loan. See Gap Loan, Swing Loan.
Example: Collins, who is a developer, has a construction loan outstanding. She is in the process of negotiating better terms for permanent financing than the commitment previously arranged. She has arranged a bridge loan to pay off the construction loan when it is due. When new permanent financing is arranged, that loan will pay off the bridge loan.

Debt that is incurred on a short-term basis until permanent financing can be arranged.