Bridge Loan vs Term Loan
A bridge loan exits on a specific event. A term loan lives on your balance sheet for years. Different tools for different timelines.
A bridge loan and a term loan look similar on the surface — both lump sums, both with a monthly payment, both unsecured-to-lightly-secured. The structural difference is the exit. A bridge loan is built to be paid off in 30–180 days when a specific event closes: a property sale, an acquisition, a contract payment, a permanent loan funding behind it. It is interest-only for most of its life, has aggressive early-payoff discounts so you only pay interest for the days you actually use the money, and the underwriter is mostly asking "what is the exit and how confident am I in it?" A term loan is built to live on your balance sheet for years. Three to seven year amortization, full principal-and-interest payments, the lender is underwriting your ability to service the debt out of operating cash flow over the entire term. The use of funds is something with a long payback — equipment, acquisition, recapitalization, multi-year growth investment — and the right way to think about the rate is the lifetime cost over the full amortization, not the monthly payment. The short answer: if you can name the exit event and its expected close date, a bridge loan is the right tool because you only pay for the months you actually use. If the use of funds has a payback measured in years rather than months, a term loan is structurally cheaper because you spread the cost across the timeline of the recovery.
Bridge Loan vs Term Loan at a glance
| Feature | Bridge Loan | Term Loan |
|---|---|---|
| Speed | 3–7 business days | 3–8 weeks |
| Cost | Prime + 4–8% (annualized; effective cost lower if paid off early) | Prime + 2–6% for non-SBA; lower for SBA 7(a) at Prime + 2–3% |
| Range | $50K – $5MM+ | $100K – $25M+ |
| Collateral | Often the exit asset itself; sometimes unsecured for shorter terms | Blanket UCC, personal guarantee, often specific asset lien |
| Term | 30–180 days typical, sometimes up to 12 months | 3–7 years (longer for SBA or real estate) |
| Payment structure | Interest-only with balloon at exit | Fully amortizing principal and interest |
| Speed to fund | 3–7 business days | 3–8 weeks |
| Pricing (as of 2026) | Prime + 4–8% annualized; aggressive early-payoff discounts | Prime + 2–6% (non-SBA); Prime + 2–3% (SBA 7(a)) |
| How rate is best evaluated | Total dollars paid over the actual holding period | Lifetime cost over the full amortization |
| Use of funds | Timing gaps, acquisition bridge, contract pre-funding, permanent-loan bridge | Equipment, acquisition, recapitalization, long-payback growth |
| Exit | A specific named event — sale, refinance, contract payment | Amortizes to zero over the term |
| Loan size | $50K – $5MM+ | $100K – $25M+ |
When to pick Bridge Loan
Short-term, often interest-only capital that exits when a specific event closes — a contract, an acquisition, a property sale.
Pick a bridge loan when you can name the exit and the expected close date. Mike's frame on this is exact: it is "means to an end" capital. You take a higher annualized rate because the actual holding period is short, the use of funds is specific, and the math works as soon as you measure it against the right timeframe. Six or seven percent annualized sounds horrible until you realize the loan is outstanding for two months — at which point the actual dollar cost is a small fraction of the deal it is enabling. The classic uses are acquisition timing gaps (you have a closing date but a working-capital piece is not in place yet), permanent-loan bridges (the long-term financing is approved but cannot fund for six weeks), contract pre-funding (the contract has a payment milestone but you need to fund delivery first), and seasonal timing gaps. The bridge underwriter cares about exactly one thing: is the exit real, and how confident am I in the date? Bring documentation of the exit event — the term sheet on the permanent loan, the executed contract, the property sale agreement — and the structuring conversation gets fast.
- •You can name the exit event and its expected close date
- •The use of funds has a payback measured in days or months, not years
- •You want interest-only payments until the exit
- •You want the option of an early-payoff discount if the exit closes faster than planned
- •Speed matters — you need the money in days, not weeks
When to pick Term Loan
Permanent structured debt with full principal-and-interest amortization over 3–7 years. The standard answer when the use of funds has a long payback.
Pick a term loan when the use of funds has a long-tail payback and there is no specific exit event. Buying equipment that will produce revenue for five years. Funding an acquisition that will generate cash flow indefinitely. Recapitalizing the balance sheet so the business runs on a healthier debt structure. In all of these cases, the right way to spread the cost is over the timeline of the recovery, which is what a term loan does: full P&I amortization over three to seven years, fixed monthly payment, predictable budgeting. The right comparison for term-loan pricing is the lifetime cost over the full amortization, not the monthly payment. A $1MM term loan at Prime + 4% over five years has a meaningfully different total cost than the same loan at Prime + 3% over seven years, even if the monthly payment on the longer term feels easier. Match the amortization to the recovery curve of the use of funds. Equipment that produces revenue for five years should be financed over roughly five years, not 18 months — financing it short forces the business to absorb the full cost on its operating cash flow before the asset has finished paying for itself.
- •The use of funds has a multi-year payback — equipment, acquisition, recapitalization
- •There is no specific exit event you can underwrite around
- •You want a predictable fixed monthly payment for years
- •You can wait 3–8 weeks to close in exchange for lower lifetime cost
- •The amortization can be matched to the recovery curve of the asset or use
A worked example
Scenario: A growing professional-services firm wins a $2MM contract that requires $400K of upfront staffing and licensing costs. The first contract payment is scheduled for 75 days after work begins.
How the math works out: Bridge loan path: $400K bridge at 7% annualized, interest-only, 90-day term. Total interest cost over 90 days: roughly $7,000. The bridge is paid off in full when the first contract payment lands. Term loan path: $400K term loan at Prime + 4% (assume 12% in 2026) amortized over 36 months. Monthly P&I: roughly $13,300. Total interest cost over 36 months: roughly $78,000.
Takeaway: For a use of funds with a known 75–90 day payback, the bridge loan costs about a tenth of what the term loan would cost over its full life — because the bridge exits as soon as the contract payment arrives, and the term loan keeps amortizing for 36 months on a need that disappeared after three. Flip the scenario to a $400K equipment purchase that will produce revenue for five years and the term loan wins decisively because the bridge would need to be refinanced into something longer anyway.
How Michael thinks about it
“we can get you short-term bridge money to fill orders that you're going to pay a higher rate from an annual standpoint than you would like to probably, but when you understand how it'll function, because it'll function like a line of credit where you can pay it off in two months, and you will have paid a total of 6%, 7% annualized, that sounds horrible, but if it's a means to an end until we clean up your balance sheet to go, okay, I'll give up 6% on my 66% margin, or whatever it is, these orders out the door to get this moving.”
— Michael Kodinsky, Founder of Serve Funding · Mike on the Lewis Farsedakis call, framing bridge capital as "means to an end" — the rate looks high annualized, but the actual dollar cost over a 60–90 day holding period is small relative to the deal it is enabling.
“there's a solid chance that we can get you one of these very, very SBA-like deals, 10-year. You probably wouldn't need an SBA. technically an SBA, because, but it'll be, there might be priced a point higher, but they're still going to be kind of like prime plus a cut, you know?”
— Michael Kodinsky, Founder of Serve Funding · Mike on the Lewis call again, framing the non-bank term-loan side — long amortization, slightly higher rate than SBA, but built to live on the balance sheet for years.
“I'd rather under promise and over deliver and not the other way around, if you know what I mean.”
— Michael Kodinsky, Founder of Serve Funding · Mike's standard posture on every bridge deal: he will not promise an exit date he is not confident the lender can deliver, because a bridge whose exit slips becomes a structural problem rather than a timing solution.
Common questions
Why does a bridge loan look so expensive annualized?
Because the annualized rate is a misleading way to measure a loan you are only going to hold for 60–180 days. A 7% annualized rate on a $400K bridge held for 90 days is roughly $7,000 in actual interest cost. The right way to evaluate a bridge is the total dollar cost over the actual holding period, measured against the value of the deal it is enabling. If the bridge unlocks a $2MM contract with a $400K margin, $7,000 of interest is a rounding error on the deal economics.
What happens if my exit event slips?
This is the question every bridge underwriter is asking. Most bridge lenders will extend the maturity for a fee if the exit slips by 30–60 days — but extensions get expensive and the lender will want to see the updated documentation supporting the new close date. The honest discipline is to size the bridge with a buffer (use the lender's 180-day option even if you only expect to need 90 days) and to have a Plan B refinance lined up if the primary exit cannot close.
Can I refinance a bridge loan into a term loan?
Yes, and this is sometimes the planned exit. A common stack is to take a bridge for the immediate funding need, use the time the bridge is outstanding to run a full term-loan or SBA underwrite, and refinance the bridge balance into the long-term product when it funds. This is also how acquisition bridges typically work: the bridge funds at close, the permanent debt funds 60–90 days later, and the bridge is paid off out of the permanent.
How much can I borrow on a bridge?
Bridge loans typically range from $50K to $5MM, with larger bridges available on real-estate-collateralized deals. The size is mostly driven by the exit — if the exit event is paying off $400K, the bridge will be sized at $400K. Bridge underwriters are conservative about lending more than the exit will fully retire, because that creates a refinancing risk they did not underwrite.
Is a bridge loan an MCA?
No. A bridge loan is structured as a term loan with a specific exit event, typically interest-only payments, and an annualized rate that is much lower than an MCA when measured over the actual holding period. An MCA is a daily-pull cash advance with no defined exit event other than the contract paying out over its full term. The two products solve different problems and have very different structural risk profiles.
Do term loans always have prepayment penalties?
Not always. SBA loans of longer than 15 years have prepayment penalties for the first three years. Conventional non-SBA term loans vary: some have step-down prepay penalties, some have no prepay penalty at all. Bridge loans are the opposite end of the spectrum — most have early-payoff discounts that reward you for exiting faster than planned. Always confirm prepay terms in writing during the term-sheet stage.
Can I do both — a bridge now and a term loan later?
Yes, and this is one of the cleanest stacks in capital structuring. Take the bridge to fund the immediate need, use the bridge period to run the longer underwrite for the term loan, and refinance the bridge into the term loan when it closes. The keys are making sure the bridge maturity gives the term loan enough runway to close, and confirming that the bridge does not have a UCC priority position that would block the term lender from taking the senior position they need.
