Sources of finance

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07 October 2011 what is bridge finance?

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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07 October 2011 Bridge financing is a method of financing, used to maintain liquidity while waiting for an anticipated and reasonably expected inflow of cash.

Bridge financing is commonly used when the cash flow from a sale of an asset is expected after the cash outlay for the purchase of an asset.

Bridge financing may also be provided by banks underwriting an offering of bonds.

If the banks are unsuccessful in selling a company's bonds to qualified institutional buyers, they are typically required to buy the bonds from the issuing company themselves, on terms much less favorable than if they had been successful in finding institutional buyers and acting as pure intermediaries.

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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07 October 2011 There are two types of bridging finance. Closed bridging and Open Bridging.

Closed bridging finance is where you have a date for the exit of the bridging finance and are sure that the bridging finance can be repaid on that date. This is less risky for the lender and thus the interest rate charged are lower.

Open bridging is higher risk for the lender. This is where the borrower does not have an exact date for the bridging finance exit and may be looking for a buyer of the property or land.

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