What Is a Bridge Loan?

A bridge loan is a short-term loan used to cover an immediate cash need while a borrower waits for a longer-term, usually larger, source of financing to close. It’s meant to “bridge” the gap between two points in time — buying a new home before an old one sells, or keeping a startup funded between financing rounds — and it’s priced and structured for speed and short duration rather than for the lowest possible rate.

How bridge loans work

Bridge loans are typically secured against an asset the borrower already owns or against the expectation of an incoming source of funds, and they’re structured to be paid off quickly — often within six months to two years. Because the lender is taking on more uncertainty (the “longer-term financing” the loan is bridging to might not materialize on schedule, or at all), bridge loans usually carry meaningfully higher interest rates than conventional financing, along with origination fees that reflect the speed and flexibility of underwriting.

The defining feature isn’t the interest rate or the collateral — it’s the assumption, built into the deal from the start, that this loan is temporary. A mortgage or a term loan is meant to be the end state; a bridge loan is meant to be replaced.

The most common use case: real estate

The classic bridge loan example is a homeowner who wants to buy a new house before their current one sells. Rather than making the purchase contingent on the sale — which can lose a deal in a competitive market — the buyer takes out a bridge loan secured against the equity in their current home, uses it to fund the down payment or full purchase of the new one, and pays it off once the old home sells.

This lets a buyer act on a timeline that has nothing to do with how long their existing home takes to sell, at the cost of carrying two loans simultaneously (the bridge loan and often a new mortgage) for whatever the bridge period turns out to be.

Bridge loans in startup financing

In venture-backed startups, a bridge loan (often called “bridge financing” or a “bridge round”) serves a similar function between equity rounds. A company running low on cash before its next priced round closes might raise a bridge loan — sometimes structured as a convertible note or a SAFE rather than traditional debt — from existing investors to extend its runway until the next round is ready to close.

This differs in one important way from consumer bridge loans: the “repayment” is often conversion into equity at the next round’s valuation, sometimes at a discount, rather than cash repayment. A bridge round that happens because the company is struggling, rather than simply timing two rounds a few months apart, is sometimes priced at a discount steep enough to function like a down round in substance even when it isn’t labeled one.

Bridge loans vs other short-term financing

	Bridge loan	Venture debt	Line of credit
Typical use	Cover a gap until a specific, known event (sale, next round) closes	Extend runway without diluting equity, often alongside an equity round	Ongoing, revolving access to funds as needed
Duration	Weeks to ~2 years	Usually 2-4 years	Open-ended, revolving
Collateral	Often secured against a specific asset or expected proceeds	Typically secured against company assets/IP	Varies; often secured against receivables or assets
Repayment trigger	The bridged-to event (sale proceeds, new financing round)	Scheduled amortization	Draw and repay as needed
Cost	Higher rate, reflects short-term risk and urgency	Interest plus warrants, generally cheaper than a bridge round	Rate tied to usage, often lowest of the three when available

Venture debt and bridge loans are often confused because both show up in a startup’s financing stack outside of priced equity rounds, but venture debt is usually a planned part of a capital strategy, while a bridge loan is more often a reactive measure to cover a specific, time-boxed gap.

What makes bridge loans risky

The core risk in any bridge loan is that the “bridge” doesn’t reach the other side. A homebuyer whose old house doesn’t sell as fast as expected can end up carrying two loans far longer than planned. A startup whose bridge financing was meant to last three months until a new round closes can run out of cash if that round slips or falls through entirely — at which point the bridge loan’s higher cost and shorter fuse compound the original problem it was meant to solve.

This is why lenders (and, in the startup case, existing investors extending a bridge) scrutinize the certainty of the event on the other side of the bridge more than they would for ordinary term financing: the loan’s soundness depends almost entirely on whether that specific future event actually happens on schedule.

The takeaway

A bridge loan is short-term, higher-cost financing designed to cover a gap until a specific, larger source of funds — a home sale, a new financing round — comes through. It trades a higher interest rate and real refinancing risk for speed and flexibility, which makes it a useful tool when timing a transaction precisely matters more than minimizing the cost of capital, and a dangerous one when the event it’s bridging to doesn’t arrive on schedule.