Bridge financing is a short-term loan used to close an acquisition on schedule when the buyer’s permanent financing — a term loan, an equity draw, or a refinancing — will not be in place by the closing date the purchase agreement requires.
The gap it closes is a timing gap, not a solvency gap. A conventional or CSBFP-backed loan goes through a participating lender’s own underwriting process, review of buyer financials and business statements and often an independent valuation, and moves on the lender’s own timeline and documentation requirements that a buyer has limited ability to compress beyond supplying complete information promptly. When the sale and purchase agreement fixes a closing date that arrives before that process is finished, a short-term bridge facility funds the closing and is repaid once the permanent loan is advanced.
Bridge financing is not a substitute for the eligibility rules of the permanent facility it is standing in for. If the deal is a share purchase, for instance, the CSBFP tranche behind the bridge still cannot be the one that funds it: “you cannot use a loan to finance items such as share purchases or assets that a holding company acquires”. The bridge only closes the timing gap; it does not widen what the permanent lender is willing to finance.
Because it is short-tenor and carries the risk that the permanent financing does not land as planned, a bridge facility is typically secured — commonly by a general security agreement over the acquiring entity — and priced at a premium to the loan it is bridging to. The premium and the security package are deal-specific; nothing published sets a standard Canadian rate for an acquisition bridge, so treat any number quoted for one as specific to that lender and that file.
An independent sponsor signs a share purchase agreement with a 45-day closing. The sponsor’s BDC Business Purchase Loan is still in underwriting and will not fund until day 60. The sponsor arranges a 15-day secured bridge facility from an interim lender, drawn on day 45 to close on schedule and repaid in full on day 60 when the BDC facility funds — the bridge lender is out of the deal within two weeks, and the permanent capital structure looks exactly as it would have if the BDC loan had simply arrived earlier.
See also: Business Development Bank of Canada, Canada Small Business Financing Programme and general security agreement.
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