A bridge loan is a type of short-term loan, typically taken out for a period of 6 to 18 months pending the arrangement of larger or longer-term financing. It 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 (i.e. to pay back) the bridge loan, as well as other capitalization needs.
Bridge loans are typically more expensive than conventional financing, to compensate for the additional risk. Bridge loans typically have a higher interest rate, points, and other costs that are amortized over a shorter period, and various fees and other costs. (such as equity participation by the lender in some loans). 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.