Bridge Loan Definition | Business Lending Glossary

Definition

Short-term financing that provides immediate capital while a business waits for longer-term funding to close or a specific event to occur.

Explanation

Bridge loans are designed to "bridge" a gap between a current need and a future funding event. Common uses include covering operating expenses while waiting for an SBA loan to close (which can take 60–90 days), funding a real estate purchase before a property sells, or maintaining operations during a capital raise. Bridge loans typically carry higher interest rates than long-term financing because of their short duration and expedited underwriting. Terms usually range from 1 to 12 months.

Example

A restaurant owner is approved for a $200,000 SBA loan but the closing process takes 10 weeks. To cover payroll and inventory in the meantime, they take a $40,000 bridge loan at higher rates, then repay it immediately when the SBA funds close.

Why It Matters

Bridge loans can prevent business disruption when timing mismatches occur between your capital need and a pending long-term funding source. The key is understanding the total cost and having a clear, reliable exit — the long-term financing or event that will repay the bridge.

Frequently asked questions

What is the typical cost of a bridge loan?

Bridge loan costs vary widely by lender and structure. Annualized costs often range from 15% to 50% APR or more for short-term bridge products. Calculate the total dollar cost — not just the rate — to evaluate whether the bridge makes financial sense for your situation.

What is the difference between a bridge loan and a merchant cash advance?

Both provide fast short-term capital, but they differ structurally. A bridge loan is a true loan with fixed repayment. An MCA is a purchase of future receivables repaid via daily or weekly ACH debits as a percentage of revenue. Bridge loans are typically used for specific gap-financing scenarios; MCAs are used for general working capital.