Bridge financing

How it works

A bridge facility covers a defined period before an expected event, such as an asset sale, receivable collection, longer-term financing, or another specified source of funds. Security and pricing depend on the transaction.

Where it can fit

Identify the exit amount, date, and conditions before focusing on the advance. A confirmed event with conservative timing creates a different proposition from hoping a future refinance becomes available.

Look closely at the trade-offs

Stress-test a delayed or smaller exit. Extension fees, default pricing, maturity, and enforcement rights matter when a bridge runs longer than planned. Repeated renewals can turn a short facility into expensive long-term debt.

Name the exit before discussing the advance

Bridge capital covers a gap before another source of money is expected. BDC notes that it can take debt or equity forms; this guide focuses on short-term business borrowing. Describe the repayment event precisely: a committed asset sale, an approved refinancing, a customer collection or another identifiable source. A hoped-for event needs a different level of contingency from an unconditional commitment.

Source: BDC: Bridge capital

Worked example: delay changes more than interest

Assume a fictional company borrows $200,000 for six months at an invented 12% simple annual interest rate, with a $4,000 fee paid separately. If principal stays outstanding for exactly half a year, simple interest is $12,000 and financing cost is $16,000 before other charges. The company expects $240,000 of net sale proceeds, enough to pay the $212,000 principal-plus-interest obligation and retain $28,000.

Now assume the sale closes three months later and the lender agrees to extend on the same simple rate plus a $3,000 extension fee. Additional interest is $6,000, so retained proceeds fall to $19,000. If net sale proceeds also fall to $210,000, there would be an $11,000 shortfall against $218,000 principal and interest plus the $3,000 extension fee. An extension is an assumption in this example, not a borrower entitlement.

Keep a fallback that does not repeat the same assumption

A plan to refinance a bridge with another unapproved bridge is not an independent exit. Consider what cash can be retained, which spending can be delayed and whether the underlying transaction can still proceed if the expected event slips. Ask for the contractual maturity and extension process, including notice dates and discretion.

Review the amount actually received after fees, the repayment balance, guarantees and security. If an asset sale supplies the exit, deduct selling costs and existing liens before calling the gross price available cash. If refinancing supplies it, confirm its conditions and expiry. The useful comparison is between fully specified paths to repayment, not just headline monthly rates.

Create a simple exit evidence folder containing the sale agreement, refinancing approval or other documents supporting repayment. Flag conditions, expiry dates and dependencies rather than treating the presence of a document as certainty. Ask what information would cause management to change course, such as a missed buyer deposit or unresolved approval condition. Set that review point early enough to discuss alternatives before maturity, when the business still has time to respond to a changed situation.

• What exactly repays the bridge, and is that source committed?
• What if the exit is later or smaller than expected?
• Are extensions discretionary and what do they cost?
• What security and guarantees remain until the obligation is discharged?

Your next-step checklist

• Documented repayment event
• Delay and shortfall scenario
• Extension options and costs
• Security and maturity terms