A bridge loan is a short-term debt that covers the time period between the conclusion of a prior loan and the commencement of another loan. Thus, the recipient is committing to obtain longer-term financing shortly that will pay off the bridge loan.
This option is commonly used when an entity is seeking to replace a construction loan with a long-term note that it expects to pay down gradually over a number of years. A bridge loan is typically secured by facilities or fixtures, and the interest rate tends to be fairly high.
A bridge loan is also known as gap financing.