UK Accounting Glossary
A bridge loan is a temporary source of financing intended to last only until more permanent financial arrangements can be made. A bridge loan is usually for a year or less, often much less. The bridge loan is very common in two arenas, start-up finance and real estate. A start-up anticipating receipt of venture capital might seek a bridge loan from the VC partner(s) to meet operating needs until the deal closes. In this case, only the venture backers would risk making the bridge loan. In real estate, a bridge loan is easier to obtain because it will generally be secured by title to property. A common bridge loan scenario for the individual homeowner is when a buyer wants to purchase a new property, but cannot qualify for a new mortgage because of an existing mortgage. If the current home is not yet on the market, a bridge loan is a last resort financing option. Once the existing home is sold, the buyer can qualify for a mortgage and repay the bridge loan.
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This glossary post was last updated: 4th February 2020.