Plain definition
Bridge financing covers a temporary funding need until a specified event provides longer-term funds or cash. That event might be a completed refinancing, an asset sale, or an investment round. The bridge has its own repayment date and conditions; the expected later transaction does not guarantee repayment.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
Suppose a company needs in July and expects an investor to complete a funding round in October. It accepts a bridge loan due on 31 October. The investor then delays its decision until December. The business still owes the bridge lender in October unless the lender agrees to change the terms.
The bridge covered July’s need but created a new deadline. A funding discussion was not a committed repayment source.
An expected equity round, sale, or refinancing belongs in a scenario until its funding conditions are sufficiently supported.
Why it matters
Short-term money can preserve a valuable opportunity. It can also make the company more fragile if repayment depends on a transaction outside its control. A founder needs to understand both the immediate use of funds and the consequences if the expected exit fails.
Practical consequence
Identify the specific repayment source, its approvals and conditions, and the latest date cash could arrive. Model a delay beyond the bridge maturity, including fees and any accumulated financing charges. Confirm extension rights in writing rather than assuming renewal, and establish another repayment or restructuring option before accepting the loan.