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Bridging loans: How to use bridge finance to survive & thrive

Laurence Kermorgant
June 26, 2024
4 min
Financing 101
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Getting caught short on funds isn’t really an option for companies. Run out of money and you quickly go out of business. That goes without saying. 

And while major fundraising rounds are the long-term answer to cash flow issues, there are short-term financing options to keep you afloat from round to round. 

Case in point: bridging loans are designed specifically to extend your existing cash reserves until new investment arrives. They’re particularly useful for startups to survive from series A-B-C (and on), but they’re used by all kinds of businesses in a range of scenarios.

This article explains what the term means, why you might use this form of funding, and your best options. Let’s dive in.

1. What is a bridging loan?

A bridging loan — or bridge finance more generally —  is a short-term cash advance that helps businesses wait for future funds or financing. This temporary solution is eventually replaced by long-term financial arrangements.

The term is often used by startups seeking funds from investors. But it can also apply to more traditional businesses going through seasonal downturns, or companies wanting to test a particular strategy before investing in it fully. 

When should bridge financing be used?

Bridge financing is frequently used in mergers and acquisitions (M&A), by startups between fundraising rounds, in leveraged buyouts (LBOs), and to accelerate investment projects that require time to secure equity or debt financing.

This funding is particularly valuable when you need long-term investment, but either economic conditions or the company’s recent performance mean it’s better to wait.

Bridge financing often comes with higher fees or interest than other forms of financing. Because they’re urgent and your negotiating power is low, there’s not much you can do to avoid this. 

Two forms of bridge finance

As with most forms of funding, we can differentiate between equity and debt financing. 

  1. Equity bridge financing: Offered by investors, particularly between two rounds of financing or before a stock market flotation. This includes bonds convertible into shares, which we'll discuss later.
  2. Bridging loan (debt): A classic short-term debt that comes into play before the final long-term loan is granted, or before the payment of public investment grants or subsidies.

You don’t always have a choice between the two — circumstances may limit your options. But as we’ll explore shortly, debt financing is almost always cheaper in the long run. Even with interest and fees factored in, you’d rather keep the biggest possible stake in your own business. 

But for the sake of completeness, let’s look now at what equity bridge financing can look like. 

2. Equity bridge financing

Equity bridge financing involves obtaining funds from private investors or public investment banks. The value of the securities granted in return for this financing is generally based on the company’s previous valuation, often from the last fundraising round.

Equity bridge financing is dilutive, introducing new shareholders and reducing the founders' control over the company. This reduces your own profits year to year, and especially when you eventually sell the business or go public (IPO).  

Possible forms of equity bridge financing

  1. Convertible bonds (CB): Holders can redeem the debt or convert it into capital at maturity.
  2. Redeemable equity warrants (BSARs): Another form of convertible equity.
  3. RIA BSARs (Rapid Investment Agreement): Allows companies to defer their valuation while offering investors a discount on future fund-raising prices.
  4. Shareholder's current account: Financial contributions by existing shareholders.

Example: French Tech Bridge

During the COVID-19 pandemic, the public investment bank Bpifrance offered a financing package called French Tech Bridge, providing innovative startups with short-term financing for 6 to 24 months. Businesses could raise up to €5 million in convertible bonds.

This was specifically aimed at startups that had been in the process of obtaining financing, but had been stalled by the pandemic.

Advantages and disadvantages of equity bridge financing

As with all forms of financing, there are clear upsides and downsides to be aware of.


  • (Relatively) quick access to funds to preserve cash flow
  • Investors may also provide ongoing support and guidance to help maximise their own investment. 


  • Often high interest rates, particularly if the repayment period stretches on
  • Dilution of capital, introducing new shareholders and reducing existing owners’ control.

This kind of bridging finance is best where you have a clear plan to get to the next round of fundraising. And most importantly, where the likely gain in value at that next fundraising round will account for the losses caused by the bridging finance. 

In other words, if extra investment now will double or triple your gains in the near future, it makes sense. But diluting your ownership stake just to stay afloat — to limp to the next milestone — is a last resort.

3. How bridging loans work

These are short-term loans — usually with a maximum term of one year — that act as a bridge to a larger loan or round of investment. They often require collateral such as equipment, stock, or property. 

These are a form of non-dilutive financing. So while you will pay interest, fees, or lose your collateral if you default, you don’t hand over a stake in your business. 

Advantages and disadvantages of bridge loans

Compared with equity bridge financing, there are a few clear advantages and disadvantages to bridge debt. 


  • Quick access to funds. Often even quicker than equity arrangements, which can involve more negotiation.
  • No dilution of capital, so you maintain control over the company.


  • High interest rates and fees
  • You risk losing collateral if you can’t repay on time

4. Alternatives to bridge financing

Besides bridge financing, growing companies can consider other cash flow solutions. In some ways, these operate the same way as bridge loans, they’re just not positioned in the same way. 

But whether you need fast access to cash for growth, seasonal fluctuations, or more existential survival, consider these options. 

The best alternative to bridging loans

Most bridging loans rely on collateral, which makes them risky. But you can also raise funds based on your supplier invoices (accounts payable) and outstanding customer payments (accounts receivable).

  • Accounts payable: Get funding now to buy supplies, then repay this credit 30-90 days later, once you’ve sold these goods. 
  • Accounts receivable: If your customer payment terms are long, you can receive funds immediately to bridge this delay. The loan is repaid when the customer eventually pays. 

The beauty of both these funding forms is that there’s no collateral, and very little risk. You know that the sales revenue is coming relatively soon, and you can have the money you need now rather than wait. 

Choose the right provider, and it’s also incredibly fast to get started. Unlike traditional factoring which can take months, for example, you can be up and running with Defacto in just 27 seconds (on average). 

You can then use this credit just like you would a classic bridging loan. But with easier setup and more advantageous terms. 

Get short-term funding with Defacto

If you need fast, flexible, and fair financing, Defacto is worth a very close look. As noted above, it takes less than 30 seconds to see whether you’re eligible and find out how much funding you could receive. 

The loans themselves are also more adaptable than traditional options. You get a line of credit to dip into as and when you need it, and reapplying is just as easy as the initial application. 

Bridge financing, whether equity or loan, has become a standard choice for small businesses. But it’s not the only solution for urgent cash needs. 

Consider options like Defacto for quick and efficient cash advances.

Get access to instant pay-as-you-go financing to cover stock, marketing, and B2B receivables to grow on your own terms.
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