As its name might suggest, a bridge financing is a one that offers short term financing until long term financing is obtained, AKA a bridge between loans.
It allows you to meet your current financial obligations by getting cash in your hand pronto. Bridge financing is usually up to a year, and they often come with high interest rates. Sometimes you’ll need to put down some kind of collateral like real estate or inventory to secure such a loan.
Because of the quickness of bridge financing compared to a more traditional type of loan, they are often one of the best options for a startup that needs to pay employees and rent before funding comes through.
Bridge financing is often thought of as a more legit “IOU”. The thing about taking one out is that you’ll pretty much immediately need to start paying it back, which means you need to know that money will be coming in shortly. If not, you could find yourself in a potentially bad situation, which is why a lot of people try at all costs to steer clear of bridge financing.
Oftentimes, bridge financing can serve as a lifeline to keep your startup going. Without it, some businesses would never have made it past their infancy. A lot of times, bridge financing is paid back in the form of stock rather than with dollars, meaning the venture capitalist to offer you the loan gets a stronger benefit for taking part in the loan.
In order to make it through to next quarter, we’re going to need to take out temporary bridge financing.