Why bridge loan matters to a first-time founder
It can solve a timing mismatch, but the repayment date often arrives quickly and the cost may be high. If the expected sale or refinancing slips, the business may face default, loss of pledged assets or an urgent refinance. The exit plan matters more than the temporary relief.
Examples of bridge loan
A studio borrows £80,000 for six months while waiting for a confirmed property sale. Interest and fees total £7,200, and equipment secures the loan. The sale is delayed, so the founder needs a documented fallback cash source; without one, missing repayment could put essential equipment at risk.
Common misunderstanding
A bridge loan is one form of bridge financing. It creates debt that must be repaid, while other bridge funding may use equity or a convertible instrument. It is also different from a normal working-capital facility designed for recurring short-term needs rather than one identified funding event.
When to use it
Use it when the incoming funds are specific, well advanced and expected before the loan matures. Check interest, all fees, security, personal guarantees, default terms and early repayment rules. Model a delay and failure scenario, and obtain independent legal and financial advice before signing.