A bridge loan is short-term financing used to bridge a known cash event. The classic example: a business has a building under contract and a permanent SBA 504 loan in underwriting, but needs to close the purchase before the SBA loan funds. A bridge gets the deal closed and is paid off by the permanent loan. Bridges work when the takeout is real and timed; they fail when the takeout assumption proves wrong.
What "bridge" actually means
Bridge loans are typically 3–18 month structures with interest-only or balloon repayment. They are higher-cost than the permanent financing they're replacing because the lender is taking timing risk on the takeout.
The exit strategy is the whole deal
A bridge loan without a documented exit is just an expensive short-term loan. A real exit is one of: (1) a signed purchase contract on an asset being sold, (2) a permanent loan in late underwriting with a closing date, (3) a known incoming cash event (insurance settlement, government grant, large receivable) with documentary support.
If the exit is "we'll figure it out before maturity," the loan should be repriced as long-term debt, not a bridge.
Common use cases
Real estate bridge: buying a property before selling another. Acquisition bridge: closing on a business acquisition while waiting for SBA approval. Construction bridge: funding completion before a permanent loan closes. Receivable bridge: covering a known large invoice that takes 60–120 days to collect.
Risks to model honestly
Model what happens if the takeout slips by 3, 6, or 12 months. Many bridge loans include extension options at higher rates and additional fees. Some don't extend at all and require a full payoff or refinance at maturity, which is where owners get caught.
Sources
Editorial note: This article is general information about how small-business lending products work. It is not financial, legal, or tax advice for any specific borrower. Loan terms, eligibility, and rates vary by lender, borrower profile, and current market conditions, and the specific facts of your business will determine which products and structures actually fit. Consult a CPA, attorney, or SBA-approved lender before making decisions that affect your business.