Bridge financing explained: closing when the bank says not yet

A bridge loan is short-term financing that carries a borrower from one event to another: from purchase to permanent financing, from a maturing loan to a refinance, or from an opportunity to the capital that will fund it properly. It is one of the most common and most useful tools in private credit, and one of the most misunderstood.

What a bridge loan is for

The classic case is a property purchase that must close before the long-term lender is ready. Another is a maturing mortgage where the renewal has been declined or delayed. A third is a time-limited opportunity, such as a right of first refusal or a discounted purchase, that will not wait for a bank committee. In each case the borrower is paying for certainty and speed, and the loan is designed to be repaid within months.

How it is priced and structured

Bridge loans are typically interest-only, with terms from six to twenty-four months and a lender fee at funding. Interest may be paid monthly or prepaid from proceeds. Extension options should be written into the commitment so a short delay in the exit does not become a default. The security is usually a first or second mortgage, sometimes combined with a general security agreement over business assets.

Make sure the exit is real

The single most important question in any bridge loan is how it will be repaid. A credible exit is a signed sale agreement, a conditional approval from a takeout lender or a capital commitment with a date attached. Hope is not an exit. At Catalyst we underwrite the exit as carefully as the asset, and we will say so early if we think the plan needs work.