Bridge Loan
Investment Banking glossary · Investment Banking Valuation
Definition
Temporary financing committed by investment banks at deal signing, intended to be ``taken out'' by permanent high-yield bond or term-loan financing once the market window opens. Bridges give the sponsor certainty of funds at signing with the bank assuming the syndication risk; banks earn commitment fees at signing plus funding fees if the bridge is actually drawn.
Bridge Loan in plain English
A bridge loan is exactly what it sounds like — a short-term loan that carries a company across a gap until permanent financing arrives. When a company agrees to a big acquisition, it needs to PROVE it has the cash on day one, but the cheaper long-term bonds or loans can take weeks to arrange, so a bank promises a temporary loan to guarantee the money is there at signing. Think of it as a friend fronting you the deposit for an apartment today, knowing your real loan clears next month and pays them back. The bank earns a fee just for making the promise, plus a bigger fee if the company actually has to tap the bridge — and it accepts the risk of finding the permanent lenders later.
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