Bridge financing is an interesting financing option if you have a temporary need for cash. This short-term financing is a temporary solution until long-term resources are obtained. It allows a company’s working capital needs to be met in the meantime. In this article, we will look at what bridge financing is and how it works.
Bridge financing is temporary financing to help a company meet short-term costs until it can obtain long-term financing or raise equity.
Manufacturers regularly use bridge financing, for example, to cover the cost of manufacturing an asset before delivery is made.
Bridge financing is used to meet the short-term working capital needs of a company. It generally takes the form of a loan. It can be put in place while waiting for an injection of equity capital or before an IPO (equity bridge), or before obtaining a loan (bridge loan).
Repayment of a bridge financing usually occurs when the company has received the expected resources, loan or equity, but sometimes also the sale of an asset (subsidiary, building etc).
This type of financing allows a structure to borrow on a short term basis, however this loan is often granted at a high rate to compensate for the short duration of the operation.
This financing allows companies, which do not wish to go into debt with too much interest, to go through venture capitalists. These companies advance a sum of capital until the company can raise funds. In exchange, the bridge financing companies can offer an equity stake.
It is a pre-financing technique for the IPO, allowing the company to access the resource expected on this occasion.
Chetwode, for example, provided bridge financing for a family-owned company that was short of cash due to its booming growth. It needed to put cash in place on a one-off basis before a new shareholder arrived. This bridge was put in place for a period of six months.
In conclusion, if you have a one-off need for cash, we can assist you in setting up a bridge financing. We will be happy to advise you.