Also known as “interim financing”, “gap financing” or a “swing loan” is a short-term loan that is used until a company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short term (up to one year) with relatively high interest rates and are backed by some form of collateral such as real estate or inventory.
As the term implies, these loans “bridge the gap” between times when financing is needed. They can be customized for many different situations. For example, let’s say that a company is doing a round of equity financing that is expecting to close in six months. A bridge loan could be used to secure working capital until the round of funding goes through.