Overview

Short-term bridge financing is a purpose-built, temporary funding solution to cover timing mismatches—for example, when bills are due before major receivables arrive or before a planned equity or term loan closes. Lenders price speed and short duration into the terms, so costs and eligibility vary widely. The goal is operational continuity, not long-term capital structure.

How it works (step-by-step)

  • Application and quick underwriting: Many bridge lenders make decisions in days; underwriters focus on cash flow, bank statements, invoices, and collateral. Alternative lenders often approve faster than traditional banks (Consumer Financial Protection Bureau notes variation across lender types) (https://www.consumerfinance.gov).
  • Funding and use: Funds are wired and used for payroll, inventory, vendor payments, short-term project costs, or to meet closing conditions on a larger financing.
  • Repayment: Loans typically repay from incoming receivables, the proceeds of a closing term loan or equity round, or seasonal revenues. Terms usually run 3–12 months but can be shorter or slightly longer depending on the lender.

Typical terms and costs (what to expect)

  • Amounts: Common small-business bridge loans range from small advances ($10k–$50k) to larger packages ($100k–$1M+), depending on revenue and collateral.
  • Pricing: Annualized costs vary widely. Thinly underwritten fast advances and merchant-type products can carry effective APRs in the high teens to 30%+, while bank bridge lines are typically lower (single-digit to mid-teens) — always ask for APR or total cost of capital to compare offers.
  • Fees and structure: Expect origination fees, closing fees, prepayment terms, and possible dilutive provisions (warrants) in some private financing deals.

Who uses bridge financing and eligibility

  • Common users: seasonal retailers, early-stage startups between rounds, contractors awaiting progress payments, and businesses closing a larger loan or sale.
  • Lender requirements: recent bank statements, business tax returns, outstanding receivables or purchase orders, and sometimes personal guarantees or collateral (equipment, real estate).

Alternatives to consider

In-practice advice (from my experience)

In my practice I’ve seen well-timed bridge financing prevent missed payroll and protect customer relationships. Key: size the loan to the gap, not to wishful growth projections, and identify the specific repayment source before signing. Fast funding can hide high cost—model the worst-case payoff scenario.

A short checklist before you sign

  • Document the repayment source (expected receivable, term loan commitment, or seasonal revenue).
  • Ask for the APR, total fees, and any balloon or compound interest terms.
  • Confirm prepayment penalties and origination/administrative fees in writing.
  • Verify collateral and personal guarantee requirements.
  • Run a 13-week cash-flow test to confirm the loan closes your gap (SBA and lender underwriting commonly use short-term cash forecasts).

Red flags and lender pitfalls

  • No written cost breakdown: insists only on monthly factor or daily remittance without APR disclosure.
  • Upfront ‘processing’ fees that aren’t credited to the loan.
  • Aggressive daily ACH sweeps that remove all deposits and make operations brittle.
  • Pressure to sign quickly without time to review documents or consult counsel.

Real-world example (condensed)

A retail client needed $75,000 to buy holiday inventory while a supplier credit line reset; a 90-day bridge loan covered inventory, sales funded repayment, and the client avoided stockouts. The loan cost ~6–8% for three months, cheaper than lost sales and long-term customer churn.

Tax and accounting notes

Interest and ordinary loan expenses used for business operations are generally deductible as business expenses when they are ordinary, necessary, and directly related to the trade or business (see IRS guidance on business expenses) (https://www.irs.gov/businesses/small-businesses-self-employed). Consult a tax pro to confirm treatment for your situation.

Where to find help and credible resources

Further reading on FinHelp

Professional disclaimer

This content is educational and is not financial or legal advice. For personalized guidance, consult a licensed financial advisor, attorney, or tax professional who can review your facts and documents.