VC & PE Glossary
What Is Bridge Loan?
Updated
Definition
A bridge loan is short-term financing that covers a gap until longer-term funding arrives — usually until a priced equity round closes, an acquisition completes, or permanent debt is arranged.
Useful for: Founders, Investors
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.
Related terms
- Bridge Note — A bridge note is a convertible debt instrument — usually a promissory note — that gives a startup quick cash now and converts into equity when a qualifying financing round closes.
- Bridge Round — A bridge round is interim financing — usually convertible debt or an insider-led equity extension — raised between major priced rounds to extend runway until the company hits milestones or market conditions improve.
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Common questions
Short answers for founders, LPs, and operators