Bridge Loans: Short-Term Financing for a Temporary Gap

What a bridge loan is

A bridge loan is a temporary loan repaid when a defined source of money arrives. Terms are short, often months rather than years.

The loan "bridges" a gap. Typical triggers include waiting for a long-term loan to close, waiting for a customer to pay a large invoice, buying a property before selling another, or covering costs while a contract starts.

The repayment plan is the heart of the deal. Lenders want to know exactly where the payoff will come from and when.

How bridge loans are structured

They are usually short-term, with interest-only payments or one payoff, and often secured by an asset.

Common features:

• Terms from a few months up to a year or two
• Interest-only payments or a lump sum at maturity
• Security such as real estate, equipment or receivables
• Origination and closing fees
• Prepayment terms that vary by lender

Because the term is short, fees weigh heavily. A 2% fee on a six-month loan is a far higher annualized cost than it looks.

What a bridge loan can cost

Expect a higher rate and fees than long-term financing. Compare total cost in dollars, not only the rate.

Illustrative example: borrow $100,000 for six months with a 2% fee and 12% annual interest-only. Fees are $2,000 and interest is about $6,000, for a total cost near $8,000. If the bridge lets you win a $40,000 project, that is easy to justify. If it only delays a problem, it is not.

Use the total cost guide and the APR explainer to compare.

Risks to weigh

The main risk is that the expected payoff is late or never comes, leaving you with a short-term debt you cannot repay.

Ask what happens if the sale closes late, a customer pays 60 days past due or the permanent loan is denied. Have a backup plan. If the asset is pledged, a missed payoff can mean losing it. Read about liens and personal guarantees before signing.

Alternatives to consider

Depending on the gap, a line of credit, working capital or a short-term loan may be simpler than a bridge loan.

If you need flexible cash for payroll or inventory, a business line of credit lets you draw and repay as needed. Read short-term vs. long-term business loans for the tradeoffs. For real estate bridge financing, a specialist lender usually applies, and ROI Funder does not place commercial real estate loans.

A checklist before you take a bridge loan

Confirm the payoff source, the date, the full cost and your backup plan before you sign.

1. Write down exactly where the payoff will come from and the date you expect it.
2. Ask the lender for all fees in writing, including early payoff and extension fees.
3. Calculate the total dollar cost and compare it with the benefit of the bridge.
4. Identify what collateral or guarantee is required and what you risk if you are late.
5. Plan a backup if the payoff slips by 30 or 60 days.

If you cannot answer the first and last questions confidently, the bridge may be too risky. A slower, cheaper path or a flexible line of credit may serve you better. Remember that a bridge only works if what it connects to is real.

How ROI Funder can help with a gap

ROI Funder places working capital, revenue-based financing, term loans and lines of credit that can cover a cash gap with money in the account the same business day on approved, complete files.

A complete file is the application plus 3 months of business bank statements. We consider 500+ FICO, 6+ months in business and $20,000+ monthly revenue. Start from the payback: what does the gap cost you if you do nothing, and what does the money produce? We show true cost, payback period and monthly-equivalent payments before you sign.

See working capital or short-term loans. Applying uses a soft credit pull.