A bridge loan is a short term loan taken to ensure cash flow till a long term source of finance can be arranged. The loan may be taken by an individual or a business. The duration of the loan may vary from a few weeks to three years depending on the amount needed and the purpose of the loan.
Compared to conventional loans from banks and other financial institutions, the interest rates charged for bridge loans are usually higher. This is because the costs and other fees are covered over a shorter period of time. They are also more risky for the lender as less documentation is provided. Since the paperwork involved is less, the loans can be approved more quickly.
After a conventional loan has been approved or a new source of financing arranged, part of the funds are used to pay back the bridge loan.