Bridge financing is a type of real estate finance used to fill gaps in liquidity, thus the name. When the cash flow from the sale of an asset is anticipated after the cash outlay for the purchase of an asset, typically a bridge loan is requested to maintain liquidity and to cover the initial cash outlay.
There are two different forms of commercial bridge finance; closed bridging and open bridging.
Closed bridge financing describes a finance situation where there is an established date for exit of the bridge financing. The established loan period places less risk on the lender which results in closed bridge loans typically having lower interest rates.
Open bridge financing describes almost the exact opposite scenario. In open bridge financing, the borrower is unable to determine an exact exit date at the time of the loan, typically because the borrower is still looking for a buyer for the initial asset. This places a lot more risk on the lender, thus open bridge loans typically have much higher interest rates.
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