Bridge-loan terms require a company to pay back the loan as soon as it receives its next funding round, sells the company or launches an initial public offering. Calif. Venture debt banks, unlike venture capitalists, provide loans to young companies in exchange for interest and warrants that convert into stock.
Venture capitalists provide funding for a stake in a company.
Traditional banks, meanwhile, tend to deal with more mature companies. But companies without any receivables have few options for financing, venture debt bankers say. One option is the popular equipment loan, which is similar to taking out a car loan, in which default results in repossession of the equipment. Another is senior term loans, in which all the company's assets, from furniture to intellectual-property patents, are held in collateral. Bridge loans, once much easier to get, are now generally reserved for companies with a track record.