Gap Financing
Gap financing is short-term funding that bridges the shortfall between available capital and the total amount needed for a real estate transaction. It fills the financial gap between primary financing and total project cost.
Common Uses
- Bridge loans between selling and buying properties
- Mezzanine financing between senior debt and equity
- Second mortgages covering purchase price shortfalls
- Construction gap between loan draws and permanent financing
Florida Options
- Bridge loans: Secured by existing property
- Mezzanine loans: Subordinate debt with equity participation
- Seller financing: Seller carries back a second mortgage
- Hard money: Private asset-based loans (12-18% interest)
- Government programs: SHIP, HOME funds for affordable housing
Risks
Higher interest rates (8-18%), short terms (6-24 months), additional liens reducing equity, personal guarantees, and the need for a clear exit strategy.
Related Terms
- Equity — Gap financing affects equity position
- Encumbrance — Additional liens from gap loans
- Closing — Gap financing coordinated at closing
Barnes Walker Real Estate
Barnes Walker's attorneys structure gap financing arrangements for Florida real estate transactions, ensuring proper documentation and lien priority. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC