It is a short-term funding solution used by companies to cover immediate cash needs until they can secure permanent financing.
Key characteristics include sshort-term, high-interest rates, fast approval and collateralized or convertible.
Bridge Financing (also called a Bridge Loan or Bridge Round) is a short-term funding solution used by companies to cover immediate cash needs until they can secure permanent financing or resolve a liquidity event—such as a long-term loan, investment round, or IPO.
It is called a "bridge" because it fills the gap between two financing events.
1. Short-term: Usually lasts from a few months up to a year.
2. High-interest rates: Higher than long-term loans due to increased risk and urgency.
3. Fast approval: Structured quickly to meet urgent capital needs.
4. Collateralized or convertible: Can be backed by assets or convertible into equity (in startups).
1. Before a larger funding round: Startups often raise bridge funding to maintain operations until the next equity round.
2. Before an IPO: Companies may raise funds to meet pre-listing expenses or boost working capital.
3. During M&A deals: Buyers may use bridge loans to quickly fund an acquisition while arranging longer-term financing.
4. To manage cash flow gaps: Companies with delayed receivables or seasonal business may use it to stay afloat.
Type | Description |
---|---|
Debt Bridge Loan | A short-term loan with fixed interest and repayment terms. |
Convertible Bridge Note | A loan that converts into equity during the next funding round. |
Equity Bridge Financing | Investors provide capital now for equity at a discounted price in a future round. |
A startup expects to raise ₹10 crore in Series A funding in 6 months but needs ₹1 crore now to pay salaries and vendors. It raises a bridge round of ₹1 crore from existing investors via a convertible note—which will later convert into Series A shares at a 20% discount.
Quick access to capital
Buys time before long-term funding
Flexibility in structuring (debt or equity)
Can prevent disruption in operations or growth
High cost due to urgency and risk
Dilution risk if converted to equity
May pressure the company to close follow-on financing quickly
Not suitable as a long-term solution
Used by startups before venture rounds via convertible debentures or SAFE notes
Companies approaching IPOs may use it to fund regulatory, marketing, or legal expenses
In real estate and infrastructure, bridge loans are used until banks release sanctioned funds