Two long-term funds need a short-term fund connection. This short-term fund is like a bridge connecting two long-term funds.

For example, after financial institution A got the loan project, it was unable to operate because of the temporary shortage of funds, so it consulted financial institution B and asked it to help distribute funds. After the funds of financial institution A are in place, B will withdraw from bridge loan. For B, this loan is the so-called bridge loan.

Policy banks such as CDB/ Exim Bank/Agricultural Development Bank play the role of financial institution A, while commercial banks play the role of financial institution B. bridge loan is a short-term loan and a transitional loan. Bridge loan is an effective tool to directly capitalize buying opportunities, and the biggest advantage of bridge loan is its quick recovery.

Bridge loan has a short term, no more than one year, and the interest rate is relatively high, with some mortgages such as real estate or inventory as collateral. Bridge loan is also called "bridge financing", "transitional financing", "gap financing" or "revolving loan". ?

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The role of bank bridge loan

The funds provided by bridge loan to pave the way for M&A transactions can be understood as temporary or short-term loans provided by banks and other financial institutions to borrowers. It can be in the form of fixed loan or revolving letter of credit, but the term is short. Therefore, it can only be a short-term financing, which plays a "bridge" role in M&A transactions.

The interest rate of "bridge loan" is 2%~5% higher than that of ordinary loans. When the market situation changes abnormally, it is necessary to speed up the transaction, and the high cost of buying the market forces the buyer to obtain funds quickly to end the transaction, so they adopt the "bridge loan" one after another. Subsequently, the bank loan is repaid by selling bonds and stock bills.

Both companies and individuals can use bridge loan. Bridge loan's personalized design can be applied to many different situations. For example, a company is carrying out a round of equity financing, which is expected to end in six months. The company can use bridge loan to meet its working capital needs, and will repay bridge loan by issuing bonds in the future.

Bridge loan in enterprise financing is called "gap financing", which is used to make up the time gap between repaying the issued bonds and replacing the bonds with newly issued bonds. At this time, bridge loan is also a kind of operating loan, which is used during the quiet period and IPO period, or during the signing of the letter of intent for acquisition and the implementation of the acquisition.

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