Bridge Loan

What is a Bridge Loan?

A Bridge Loan is a short-term loan used to "bridge the gap" between the need for immediate funding and the availability of long-term financing. It provides quick cash flow while a person or business is waiting for more permanent funding or the sale of an existing asset.

Key Characteristics

1. Short Tenure: Typically ranges from a few weeks to 12 months.

2. Higher Interest Rates: Interest is usually higher than regular loans due to the short-term risk.

3. Quick Disbursal: Ideal for urgent needs, such as buying property, funding acquisitions, or managing cash flow gaps.

4. Collateral-Based: Often secured by an asset like real estate or inventory.

Where It’s Used?

1. Real Estate

• A common use is when someone wants to buy a new house before selling their old one.
• The bridge loan gives them cash to make the new purchase, which is repaid after the old house is sold.

2. Corporate Finance

• Businesses use bridge loans to meet working capital needs, pay off urgent dues, or complete mergers/acquisitions while waiting for long-term funding.

Example

• A company is acquiring another firm but hasn’t yet received approval for a large loan or raised capital.
• To avoid missing the opportunity, it takes a bridge loan for ₹10 crore, which is repaid after the long-term funds arrive.

Bridge Loans in India

In India, bridge loans are offered by:

• Banks (subject to RBI guidelines)
• NBFCs (Non-Banking Financial Companies)
• Private lenders

They are often used in real estate, IPO financing, and corporate acquisitions.

Pros and Cons

Pros	Cons
Fast approval and disbursal	Higher interest rates
Fills temporary cash gaps	Short repayment period
Helps in seizing time-sensitive opportunities	May require collateral or personal guarantees

Bridge Loan vs Term Loan

Feature	Bridge Loan	Term Loan
Duration	Short-term (weeks to 12 months)	Medium to long-term (1–15 years)
Interest Rate	Higher	Lower
Purpose	Interim financing	Long-term investments