A bridge loan is short-term debt meant to carry a company from today to a defined future funding event.

How it works

A startup might take a bridge loan when a Series B term sheet is signed but closing is six weeks away, or when a bank line is being finalized. The lender — often an existing investor, a venture debt provider, or a specialty lender — advances cash now. Repayment typically comes from the upcoming equity round, asset sale, or replacement with longer-term debt.

Terms are usually tighter than venture debt: higher interest, shorter maturity (often a few months to a year), and sometimes warrants or conversion rights. Collateral can include cash, receivables, or a lien on assets. Because the clock is short, lenders focus on the credibility of the exit event, not long-run profitability.

Why it matters

• Founders: Bridge loans can prevent a fire sale or layoffs when funding is delayed. They also add another creditor to the cap table story — know the covenants before you sign.
• Investors: A bridge from insiders often signals confidence that a round will close. A bridge from outsiders at punitive rates can mean insiders would not put in more equity.

Common mistake

Treating a bridge loan as free runway extension without a hard plan for repayment. If the priced round falls through, the company may owe principal plus fees with no fresh equity to pay it off — forcing a down round, distressed sale, or shutdown.

Related ideas

See also bridge note, bridge round, venture debt, and burn rate.