Bridge Loan
A bridge loan is temporary debt financing designed to fund a transaction or liquidity need until the borrower completes a planned longer-term financing, asset sale, refinancing or other permanent source of capital.
Why bridge financing exists
Acquisition timing and capital-markets timing do not always match. A buyer may need committed funds on the merger closing date even though issuing permanent bonds or arranging a long-term loan is expected to occur later.
The bridge solves that timing mismatch. Lenders commit to provide temporary capital so the transaction is not dependent on completing the preferred permanent financing before closing.
Bridge facilities are commonly short-dated
Recent 2026 acquisition commitments include 364-day bridge facilities. The short tenor reflects their backstop purpose.
Because lenders do not generally want the bridge outstanding indefinitely, the economics can encourage refinancing through maturity dates, pricing increases, mandatory prepayments or conversion features. The exact structure is negotiated.
Permanent financing can reduce the commitment
Bridge documents often provide that proceeds from specified bond offerings, bank facilities or asset sales reduce the available bridge commitment dollar-for-dollar.
This prevents the borrower from stacking the full permanent financing on top of a bridge that was intended only as a fallback source.
A bridge loan is not the same as a financing condition
The buyer can have a committed bridge facility while the acquisition agreement expressly states that financing availability is not a condition to closing.
The commitment is part of the buyer’s funding plan. The merger agreement separately allocates whether financing failure excuses the buyer’s obligation to close.
How to evaluate a bridge in the capital plan
Start with the amount the acquisition actually needs on the closing date. Then subtract cash on hand, committed equity and permanent financing expected to settle before closing. The remaining backstop need is what the bridge is solving.
Next, test the refinance path. If a $2 billion bridge assumes a bond issuance within three months, the real risk is not only the bridge interest rate. It is whether the borrower can still access the bond market if rates widen, the acquired company underperforms or market volatility rises after closing.
A bridge that can remain outstanding for a year should also be modeled under the bridge case, not only the intended permanent-financing case. That means using the bridge spread, fees, maturity and any pricing step-ups when calculating pro forma interest coverage and liquidity.
Common mistakes
Treating the bridge as permanent debt Its purpose is usually temporary.
Assuming commitment means unconditional funding Bridge loans still have stated conditions precedent.
Looking only at the interest rate Maturity, mandatory reductions, fees and refinancing risk can matter as much as the initial spread.
Example
A strategic buyer agrees to acquire a company for cash and arranges a $15.7 billion 364-day bridge facility. The buyer expects to issue senior notes before closing. If the notes are completed, the bridge commitment can be reduced; if permanent financing is not ready, the bridge remains available subject to its funding conditions.
Example
A strategic buyer agrees to acquire a company for cash and arranges a $15.7 billion 364-day bridge facility. The buyer expects to issue senior notes before closing. If the notes are completed, the bridge commitment can be reduced; if permanent financing is not ready, the bridge remains available subject to its funding conditions.
Professional note
A bridge commitment improves deal certainty, but it is not intended to be a permanent capital structure. Review the maturity, mandatory reductions, funding conditions, pricing step-ups, conversion features and the borrower’s realistic path to refinance the bridge.
Related terms
- Sources and Uses
Sources and uses is a transaction schedule that reconciles the funding available for an acquisition with the cash required to close it. Sources commonly include debt, sponsor equity, rollover equity and target cash; uses commonly include purchase consideration, debt refinancing, transaction fees and required cash retained by the business.
- Financing Condition
A financing condition is a closing condition that makes a buyer’s obligation to complete an acquisition contingent on obtaining specified debt, equity or other financing. If the condition is not satisfied, the buyer may have a contractual basis not to close, subject to the agreement’s exact terms.
- Debt Commitment Letter
A debt commitment letter is an agreement in which lenders or arrangers commit, subject to stated terms and conditions, to provide debt financing for an acquisition or other transaction.
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