What Is a Bridging Loan and How Can It Help Your Business?

There are two primary types of bridging loans to note, closed and open.

Closed bridging loans are used when there's a confirmed, specific date for when the bridge will be repaid. A good example of this is a homeowner who has a signed sales contract but the transaction hasn't been completed yet. Closed bridging loans generally carry lower interest rates because the repayment timeline is defined.

Open bridging loans are used when the repayment timeline isn't fixed, such as when a property hasn't sold yet or when permanent financing is still being arranged. Open bridging loans typically carry higher interest rates to reflect that uncertainty.

Lenders can fund bridge loans in a matter of days, versus the weeks or even months that a traditional mortgage or conventional business loan would take. As long as you qualify and have adequate collateral, you can get approved and funded fast enough to bridge whatever financial gap you're facing.

A key concept in bridge loans is the loan-to-value ratio (LTV). Most bridge loan lenders will allow you to borrow up to 65% to 80% of the value of the collateral property; this means that if you have a collateral property worth $300,000, you're only allowed to borrow up to $240,000 against it.

During the term, bridge loans typically operate as interest-only, meaning monthly payments only cover interest. The principal loan amount is repaid in a lump sum at the end of the repayment term, which is sometimes called a balloon payment.

As a borrower, your exit strategy (or how you plan to repay the debt at the end of the term) is one of the most important factors lenders are looking at. Common exit strategies include selling the property, refinancing into permanent financing, or receiving a large incoming payment from a business sale, contract, or resolved receivables.

So, what is a bridging loan going to do for you and your business that a traditional loan can't? Here are some of the most common situations where businesses use these products to bridge a funding gap.

1. Commercial real estate acquisitions

Probably the most common use of commercial bridge loans is property acquisition. What is a bridging loan in real estate? Well, if you find a commercial property you want to buy, you often need to jump quickly, but a conventional commercial mortgage, SBA loan, or equity raise can often take too long, making you miss out on the deal. A bridging loan, however, offers funds quickly. That way, you can snag the deal and figure out more permanent financing later.

Commercial bridge loans are also commonly used when a property investor needs to complete a renovation or rehabilitation before the building even qualifies for conventional financing. A bridge loan covers the purchase and the improvements; then, once the property is stabilized and producing income, you can refinance into a long-term commercial mortgage.

2. Buying before selling

There are times when you might need to buy a new property before your existing one has sold. A bridging loan secured against the property you're selling allows you to effectively tap into your existing equity and buy the new property you want. When your sale is complete, the proceeds pay off your bridge loan.

This is also common in residential real estate, when homeowners are trying to buy a new home before their current one sells. It's especially helpful if they have a lot of untouchable equity tied up in their current home that they need to buy their new home. In this case, a bridging loan can cover the down payment or even the purchase price of their new property, which is then repaid when the old home sale closes.

3. Working capital gaps

There are many reasons a business might have a big cash flow gap: a large invoice that hasn't been paid yet, a seasonal slowdown, or a project that requires a lot of upfront spend before the client pays. A bridging loan can cover that gap temporarily, giving you the cash you need now along with the flexibility of repaying when payments start coming in.

4. Business acquisitions

There may be times where a business acquisition opportunity appears, but you don't have cash on-hand to make an offer or close the deal. Conventional acquisition financing can take months to arrange, and there may even be other interested buyers that you want to beat out. Instead of losing the deal, a bridging loan can fund the acquisition quickly; your business (or its assets) can serve as collateral while you arrange for longer-term acquisition financing.

5. Equipment purchases

Large equipment purchases occasionally create timing mismatches: the equipment is available now, but the financing isn't quite in place. A bridging loan can fund the purchase now, and repayment later coming from traditional equipment financing, a business sale, or incoming revenue tied to the equipment going into production.

6. Development projects

Property developers frequently use bridging finance to fund the early stages of a development project (like land acquisition, planning approvals, or initial site work) before construction financing is locked and in place. Once planning is approved and construction financing is secured, the bridge loan is repaid.

7. Delayed receivables

Businesses waiting on large outstanding invoices sometimes use bridging finance to keep operations running while they wait. This is similar to invoice factoring in purpose but structured differently: a bridging loan is a debt against collateral, while factoring involves selling the invoice itself. Either way, the goal is turning a known future payment into accessible capital today.