How bridge financing affects ownership and terms
Bridge financing can be provided in the form of a loan, often with special terms that reflect the higher risk. In some cases, the financing is combined with options or the possibility of conversion into shares.
For existing owners, the arrangement can mean future dilution, depending on how the financing is structured. At the same time, it can create value by giving the company time to strengthen its position ahead of the next step.
Common structures for bridge financing
Bridge financing can be designed in different ways depending on the company's situation and time horizon.
- Short-term loan with a fixed term
- Financing linked to an upcoming share issue
- Convertible instruments with future ownership
- Higher interest rate as compensation for risk
- Clear link to the next financing event
When the structure is clearly defined, bridge financing can be an effective tool for managing transition periods.
Why companies use bridge financing
Worth bearing in mind
Bridge financing is used when the company needs capital quickly to keep the business going or reach a clear milestone. This may involve securing liquidity ahead of an upcoming new share issue, an acquisition or a planned exit.
In growth companies, bridge financing is common when timing is decisive and the company wants to avoid carrying out a larger financing round under unfavourable conditions.
Frequently asked questions
When is bridge financing a good option?
When the company has a short-term capital need and a clear plan for the next financing.
Is bridge financing the same as an ordinary loan?
No, it is usually more short-term and linked to a specific future event.
Who usually provides bridge financing?
Often existing owners, investors or specialised financiers.
Can bridge financing lead to dilution?
Yes, especially if the financing is convertible or linked to future shares.
Is bridge financing common in unlisted companies?
Yes, especially in growth companies where the timing between financing rounds is critical.