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Bridge Loan provide short-term financing and are a “Bridge” to a certain liquidity generating event.

Bridge Loan is typically short-term in nature say up to 12 months and are paid off by  the proceeds of a liquidity event.

Some of the liquidity events wherein the Bridge Loan could be used are as below:

 

• Initial Public Offering/ Rights Issue

• Bond Issuance

• Sukuk issuance

• Syndicated Debt issuance

• Asset Disposal

• Sale of a division/unit

• Refinancing

• Acquisition Finance

 

Why Bridge Loan

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• Comparatively quick to mobilise: given the short-term nature of financing, its comparatively quick to mobilise from Banks/lenders.

• Meet with urgent cash usage: Bridge loans facilitate companies to meet with urgent cash requirements (example: consideration for an acquisition) till  the time permanent financing (IPO, Bond, syndicated debt) is mobilised.

• Meet with refinancing: Facilitates meeting with a large balloon/bullet payment of an existing loan.

• Mobilised to defer permanent financing: till the loan market is conducive to mobilise permanent financing.

 

 Pros & Cons of Bridge Loan

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Pros

• Easy and quick to mobilise

• Facilitates meeting immediate financing requirements

• Unsecured in nature

• Typically, bullet repayment with no amortisation

• Comparatively simple documentation

 

Cons

• Expensive than permanent financing

• Short-term arrangement