How to Record a Short-Term Bridge Loan Extended by the Fund to a Portfolio Company
Recording a short-term bridge loan extended by the PE fund directly to a portfolio company to cover an immediate capital need pending closing of permanent financing.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Bridge Loan Receivable - Portfolio Co. X | Asset (+) | 1,000,000.00 | - |
| Cash & Cash Equivalents | Asset (-) | - | 1,000,000.00 |
💡 Accountant's Note
PE funds occasionally extend short-term bridge loans to portfolio companies pending arrival of permanent capital. These are recorded as loans (not equity investments) and accrue interest at the agreed rate. Bridge loans must be authorized by the LPA (fund-to-portfolio-company loans are a related party transaction) and disclosed to LPs. These loans typically convert to equity or are repaid within 6–12 months.
Practitioner & Systems Framework
💻 ERP Architecture
Record bridge loans separately from equity investments in the portfolio accounting system. Accrue interest receivable monthly. Monitor conversion or repayment timelines. If the loan converts to equity, derecognize the loan and recognize equity at the conversion terms.
⚠️ Audit Flags
Fund-to-portfolio-company loans are related party transactions requiring heightened audit scrutiny. Auditors verify LPA authorization, arm's-length interest rates, and that the loan does not create UBTI for tax-exempt LPs (interest income from operating company loans can be UBTI).
📄 Required Documentation
LPA provision authorizing fund-to-portfolio-company loans, promissory note, board resolution of portfolio company approving the loan, LPAC disclosure, interest accrual schedule.
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