Bridge financing normally comes from an investment bank or venture capital firm in the form of a loan or equity investment. It is short-term financing, sometimes referred to as private money or hard money. Examples include: Financing to support working capital requirements for an interim period awaiting an asset sale, company sale or IPO. In investment banking terms, it is a method of financing used by companies before their IPO, to obtain the necessary cash for the maintenance of operations. Bridge financing is designed to cover expenses associated with the IPO and is typically short-term in nature. Once the IPO is Complete, the cash raised from the offering will immediately pay off the loan liability.
Bridge financing benefits investors in some important ways:
- It allows investors to make their money go further.
- It removes partners or family members from a deal. It can remove other partners from the equation, allowing an investor more freedom and flexibility with a newly acquired asset.
- It allows investors can grab a fleeting opportunity before another investor snatches it up.
This type of financing simply occurs when a company’s runway is shorter than its future financing options, and it needs to remain solvent in order to obtain such long-term financing. It allows a business to meet current obligations by providing immediate cash flow from factoring its accounts receivable. It is a helpful instrument made accessible to borrowers when the closing date of the home they purchase is before the closing date of the home they are selling.