What Is a Bridge Loan? How It Works and When to Use One

A bridge loan is a short-term financing solution designed to help individuals and businesses cover immediate financial needs while waiting for long-term funding. Often used in real estate and business financing, bridge loans provide quick access to capital and are typically secured by collateral such as property or inventory.

These loans act as a “bridge” between two financial situations, such as purchasing a new property before selling an existing one or covering business expenses while waiting for revenue. Although bridge loans offer fast funding, they generally come with higher interest rates and shorter repayment terms, making them best suited for short-term financial gaps.

In this guide, we’ll break down how bridge loans work, their advantages and risks, and when they might be the right option for your business or real estate investment.

How a Bridge Loan Works

Bridge loans provide short-term financing to cover immediate expenses, usually with a term of 6 months to 3 years. They are commonly used in real estate and business financing when funds are needed quickly but a permanent financing solution is not yet available.

Key Features of a Bridge Loan:

• Loan Amounts & Terms – Typically range from $50,000 to several million dollars, depending on the lender and collateral.
• Repayment Structure – Can be interest-only payments with a lump-sum repayment at the end or monthly installments.
• Collateral Requirement – Most bridge loans are secured by real estate, inventory, or other valuable assets.
• Interest Rates – Higher than traditional loans, often ranging from 6% to 15%, due to their short-term nature.

Bridge loans can be structured in different ways depending on the borrower’s needs. Some lenders allow flexible repayment options, while others require full repayment once long-term financing is secured.

Common Uses for a Bridge Loan

Bridge loans are used in situations where immediate capital is needed but long-term financing isn’t yet available. They help individuals and businesses cover short-term funding gaps and seize time-sensitive opportunities.

1. Real Estate Transactions

Bridge loans are commonly used in real estate purchases, allowing buyers to secure a new property before selling their existing one. This is especially useful in competitive housing markets where waiting to sell could mean losing a desired property.

Example: A homeowner secures a bridge loan to make a down payment on a new house before their current home is sold. Once the sale is complete, they use the proceeds to repay the bridge loan.

2. Business Financing

Companies often use bridge loans to maintain cash flow during short-term financial gaps, such as covering operational expenses while awaiting revenue or long-term funding.

Example: A business waiting on a large client payment uses a bridge loan to pay suppliers and employees without disruption. Once the invoice is paid, the loan is repaid.

3. Fix-and-Flip Investments

Real estate investors use bridge loans to purchase, renovate, and resell properties quickly. The short-term nature of the loan aligns with their strategy of flipping homes for profit.

Example: An investor buys a distressed property, renovates it within six months, and sells it for a profit. The proceeds from the sale are used to repay the bridge loan.

Pros and Cons of a Bridge Loan

Bridge loans can be a valuable tool for securing short-term financing, but they also come with risks. Understanding the advantages and disadvantages can help determine if a bridge loan is the right choice for your situation.

Pros of a Bridge Loan

These loans provide fast access to funds, making them ideal for borrowers who need immediate capital to complete a transaction or cover a financial gap.

• Quick access to capital: Bridge loans can be approved and funded much faster than traditional loans, often within days.
• Flexibility in use: Can be used for real estate transactions, business expenses, or short-term investments.
• Helps secure time-sensitive deals: Allows borrowers to buy a new home, invest in property, or cover urgent business costs without waiting for long-term financing.
• Interest-only payment options: Some lenders offer interest-only payments during the loan term, deferring the principal repayment until the end.

Cons of a Bridge Loan

While bridge loans offer convenience, they also come with higher interest rates, short repayment terms, and collateral requirements. Borrowers should carefully consider whether the benefits outweigh the costs.

• Higher interest rates: Bridge loans typically range from 6% to 15%, making them more expensive than traditional financing.
• Short repayment periods: Borrowers usually need to repay the loan within 6 months to 3 years, which can create financial pressure.
• Requires collateral: Most bridge loans are secured by real estate or business assets, meaning you risk losing your property if you default.
• Potential for additional fees: Origination fees, closing costs, and prepayment penalties can add to the overall expense of a bridge loan.

How to Qualify for a Bridge Loan

Lenders typically have stricter requirements for bridge loans due to their short-term nature and higher risk. Borrowers must demonstrate strong financial standing, a solid repayment plan, and sufficient collateral to secure approval.

Key Factors Lenders Consider

Qualifying for a bridge loan depends on several factors, including creditworthiness, income stability, and available assets.

• Credit score: While requirements vary, most lenders prefer a credit score of 650 or higher to qualify for a bridge loan.
• Collateral: Bridge loans are usually secured by real estate or other valuable assets, which lenders can claim if the loan is not repaid.
• Debt-to-income ratio (DTI): Lenders assess whether the borrower has enough income to handle loan payments while covering existing financial obligations.
• Exit strategy: A clear plan for repaying the loan, such as selling a property or securing long-term financing, increases the chances of approval.
• Loan-to-value ratio (LTV): Lenders typically offer 70% to 80% of the property’s value, meaning borrowers may need additional funds for a down payment or closing costs.

Application Process and Timeline

Since bridge loans are designed for quick financing, the approval process is often faster than traditional loans. However, borrowers should still be prepared with financial documentation and a strong application.

• Submit a loan application: Provide details on the loan amount, purpose, and repayment strategy.
• Provide financial documentation: Lenders may request tax returns, bank statements, credit reports, and asset valuations.
• Receive loan approval: If the lender is satisfied with the financials and exit strategy, approval can take as little as a few days to a couple of weeks.
• Close on the loan: Once approved, funds are typically dispersed within days, allowing borrowers to act quickly on time-sensitive opportunities.

Bridge Loan vs. Other Financing Options

While bridge loans offer fast access to capital, they aren’t the only financing option available. Depending on your needs, a business term loan, line of credit, or SBA loan may be a better fit. Understanding the differences can help you choose the right solution.

Bridge Loan vs. Business Term Loan

A business term loan provides a fixed amount of capital with predictable repayment terms, making it a good option for long-term financing.

• Best for: Businesses that need structured financing for major expenses with lower interest rates than bridge loans.
• Key difference: Term loans have longer repayment periods (1–10 years) and lower rates but take longer to secure.

Bridge Loan vs. Business Line of Credit

A business line of credit allows borrowers to withdraw funds as needed, rather than receiving a lump sum like a bridge loan.

• Best for: Businesses that experience seasonal cash flow fluctuations or need ongoing access to capital.
• Key difference: A line of credit is revolving, meaning funds can be reborrowed after repayment, while a bridge loan is a one-time lump sum.

Bridge Loan vs. SBA Loan

Small Business Administration (SBA) loans offer low-interest financing backed by the government, but they have a longer approval process.

• Best for: Business owners who can wait for longer approval times in exchange for lower rates and better terms.
• Key difference: SBA loans are long-term solutions, whereas bridge loans are short-term and designed for immediate cash needs.

When Is a Bridge Loan the Right Choice?

A bridge loan is best when:

• You need immediate capital to close a deal or cover expenses.
• You have a clear exit strategy, such as selling an asset or securing long-term financing.
• You can afford higher interest rates for short-term borrowing.

If you’re looking for a lower-cost, long-term financing solution, alternatives like business term loans, lines of credit, or SBA loans may be a better fit.

Secure Fast, Short-Term Financing with SBG Funding

Need quick access to capital? A bridge loan from SBG Funding can help you cover short-term expenses, seize time-sensitive opportunities, and maintain cash flow while waiting for long-term financing. We offer fast, flexible funding solutions tailored to your business needs.

Why Choose SBG Funding?

• Fast Approvals – Get a decision within 24 hours and access funds quickly.
• Flexible Loan Amounts – Borrowing available starting at $5,000 with competitive terms.
• Transparent Pricing – Enjoy low rates with no hidden fees or prepayment penalties.

How to Apply

1. Complete a Quick Online Application – Apply in just minutes.
2. Get a Fast Decision – Receive a response within 24 hours.
3. Access Your Funds Quickly – Get the capital you need upon approval.

Applying won’t impact your credit score—our streamlined process ensures fast, stress-free funding for your business.

Get Started Today

Visit our Bridge Loan page to learn more or apply now in minutes. Get the short-term financing you need with SBG Funding today.