Bridge Financing

 A bridge Financing is interim financing for an individual or business until permanent financing or the next stage of financing is obtained. Money from the new financing is generally used to "take out” the bridge loan, as well as other capitalization needs.

 Bridge financing are typically more expensive than conventional financing, to compensate for the additional risk. Bridge financing typically have a higher interest rate, points , and other costs that are amortized over a shorter period, and various fees and other "sweeteners". The lender also may require cross-collateralization and a lower loan-to-value ratio. On the other hand they are typically arranged quickly with relatively little documentation.

Examples: A bridge financing is often obtained by developers to carry a project while permit approval is sought. Because there is no guarantee the project will happen, the loan might be at a high interest rate and from a specialized lending source that will accept the risk. Once the project is fully entitled, it becomes eligible for loans from more conventional sources that are at lower-interest, for a longer term, and in a greater amount. A construction loan would then be obtained to take out the bridge loan and fund completion of the project.