Bridge capital 

is temporary funding that helps a business cover its costs until it can get
permanent capital from equity investors or debt lenders. The repayment terms for bridge
capital vary, but usually payment is made in full when the company receives the new capital or a
longer-term loan.

Bridge financing is a form of temporary financing intended to cover a company's short-term

costs until the moment when regular long-term financing is secured. Thus, it is named as bridge
financing since it is like a bridge that connects a company to debt capital through short-term
borrowings.

What is Bridge Financing?

Bridge financing is any type of short-term financing arrangement used to keep a business
solvent until it can arrange for longer-term financing. This financing is needed to fund a
firm’s operational needs, usually in relation to its expected working capital requirements. It
is usually in the form of debt, but an equity investment is also possible.

Bridge financing is defined as the method of financing which helps in the procurement of short-
term loans to cater to immediate business requirements until long term financing is
secured. Bridge loans or finance are procured to cater to the working capital needs of the
business or to solidify any short-term business requirements. They have high finance costs or
rates of interest.

These financing methods bridge the time frame when the business is facing a cash crunch and the
business is about to get capital infusion from long term financing options.

Advantages

1. These loans are processed very quickly and instantly.

2. They can help in improving the credit profile for those who have a bad credit profile if
the entity ends up servicing timely loan payments throughout the loan tenure.
 3. It helps in quick finance for pursuing auctions and immediate business needs.
4. The terms and conditions involved with bridge loans depend on the flexibility of the
lenders.
5. It helps the borrower to manage its payment cycles.

Disadvantages

1. The bridge loans carry a high rate of interest and hence are termed to be very expensive.
2. Since the loans are very expensive, they pose a high default risk from the end of
borrowers.
3. The lenders charge high fees on the late payments.
4. For each unpaid loan, the balance keeps compounding itself with the rate of finance.
5. The borrower may not be able to exit such loans as he may fail to get loans from
traditional lenders.

Limitations

1. The borrower with a bad credit profile may not get access to bridge loans.
2. The lender may ask for collateral before providing any bridge loans to insure its loans
from borrowers with a bad credit profile.
3. The lender may additionally charge high fees on originations and foreclosures