Bridge loan: what a company pays for time before permanent financing arrives

A bridge loan is a deliberately short-term borrowing that closes the gap between the moment a company needs money and the moment it can raise permanent financing. Companies take one not because it is cheap but because the deal will not wait: a payment for an acquired asset, a buyback of the company's own bond issue, a cash shortfall ahead of a placement. By design, a bridge is expensive and inconvenient for the borrower. This is not a flaw but a built-in incentive: the loan is structured so that the borrower wants to replace it as quickly as possible.

What exactly a bridge "bridges"

A bridge always runs from the point of payment to the point of refinancing. That is why a bridge never exists on its own: it comes together with an exit plan, known in English as the takeout. The classic variants are:

• a bridge to a bond issue: the company has to pay now, while the debt market will take its paper only in a few months, after a reporting date, a rating action or a placement window opens;
• a bridge to equity: the exit comes through a secondary share offering or an IPO;
• a bridge to an asset sale: the money comes back from the sale of a business, real estate or a stake;
• a bridge to a bank term loan: it covers the period until the syndicate is assembled and the documentation agreed.

In M&A deals a bridge solves a separate problem: the seller needs certainty that the buyer will pay. The bank provides a committed financing letter, the buyer comes to the deal with confirmed funds, and only afterwards replaces the bridge with bonds or a long-term loan.

The price of time: how the cost is built up

The economics of a bridge revolve around the principle "the longer it runs, the more it costs". The rate is usually set as a floating base plus a margin, and the margin steps up at intervals agreed in advance. On top of that come a one-off arrangement fee, a commitment fee and the so-called ticking fee, which accrues over the period when the commitment has already been given but the money has not yet been drawn.

The documentation also builds in mechanisms that turn an unrepaid bridge into permanent debt on the bank's terms: the right to convert it into a term loan, and sometimes into a tradable security that the lender can sell on. For the company this is the worst outcome in terms of cost. For the bank it is protection against money being stuck on its balance sheet indefinitely.

The hung bridge: a risk borne by the lender

If the market shuts — rates have gone up, the credit rating has been downgraded, the sector has come under pressure — the takeout does not happen. A bridge that can be neither repaid nor syndicated to co-investors is called a hung bridge. The bank is left with a large exposure it never planned to hold, and this shows up in its loan portfolio quality, as it builds up its loan loss provisions. This is precisely why the availability of bridges depends so heavily on the phase of the cycle: when lending conditions tighten, committed financing is offered reluctantly and at a higher price. The mechanics of this dependence are covered in our piece on the credit cycle.

How a bridge differs from a revolving credit facility

The two are often confused because both are about short-term money. The difference lies in their purpose. A revolver is a standing cushion for working capital: it is drawn and repaid many times over and stays in place for years. A bridge is a one-off structure for a specific event; it does not revolve and is meant to expire. What a company pays for a revolving facility while it has not yet drawn the money is explained in detail here.

Security, covenants and ranking in the debt structure

Because the tenor is short, the lender protects itself less through financial covenants than through structure: a pledge of shares in the company being acquired, guarantees from operating subsidiaries, and restrictions on new debt and shareholder distributions until the loan is repaid. Lenders often add forms of credit enhancement and a requirement that all proceeds from the target event go towards repaying the bridge. Ranking of claims also matters: a bridge sitting higher in the structure increases the credit risk for holders of the same issuer's unsecured paper — something visible when comparing issues in the bonds section.

How a bridge shows up in financial statements

To an outside observer, a bridge appears as a jump in short-term debt while the overall debt load holds steady or rises — especially when it comes alongside growing accounts payable. Three things are worth checking: the maturity date, whether a takeout plan has been announced, and the concrete steps taken towards it — an approved bond programme, a decision on a secondary share offering, a signed agreement to sell an asset. The timing of corporate events is easy to follow in the events calendar, and the disclosures themselves in issuer reports. Credit terminology can be checked in the glossary.

What this article does not contain: quantitative data on the Russian bridge-financing market — typical tenors, rates and volumes. The site's database holds no such statistics, and we will not make them up. Any particular bridge has to be assessed on the issuer's own disclosures and on how credible the announced takeout is.