What Is A Bridge Loan?

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

Bridge Loan is a term used frequently in investment banking, private equity and venture capital. It is a loan which is used to enable a firm to undertake an acquisition / takeover / LBO / IPO.

In an LBO or other corporate acquisition-type activity, the PE or VC firm will go to the investment bank to seek a bridge loan, then will make the purchase of the target company. The firm will then use its newly acquired target to issue corporate high-yielding bonds to pay off the bridge loan, and then will use future cash flows to pay the bond yields.

In an IPO, the bridge loan is secured in order to ensure that the company can continue operating whilst it navigates through the tumultuous time of IPO'ing onto the stock market. The company will give the investment bank some stock at a cheap price in order to pay off the bridge loan, and the investment bank sells the stock (if it so wishes) in order to recoup its loan.

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Patrick Curtis

Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.