A bridge loan is interim
financing for an individual or business until
permanent or the next stage of financing can be
obtained. Money from the new financing is
generally used to "take out" (i.e. to pay back)
the bridge loan, as well as other
capitalization needs.
Bridge loans are typically more expensive than conventional financing because of a higher interest rate, points and other costs that are amortized over a shorter period, and various fees and other "sweeteners" (such as equity participation by the lender in some loans). To compensate for the additional risk the lender may require cross-collateralization and a lower loan-to-value ratio. On the other hand they are typically arranged quickly with relatively little documentation.