GAP Financing
GAP capital can cover the last stretch of your budget when the senior loan does not fund 100%, but it is not unlimited and is usually constrained by leverage and deal strength.
Why GAP funding is often limited
- GAP funds are typically capped by LTARV and total leverage.
- Availability varies by deal size, and smaller deals can be harder to place.
- Underwriting commonly considers borrower experience, credit, and exit clarity.
What GAP lenders look at
- Total leverage vs. LTARV and the senior lender's structure
- Experience with the strategy (fix & flip, BRRRR, heavy rehab, ground-up)
- Credit profile and liquidity/reserves (deal-dependent)
- Budget realism, timeline, and a clean exit plan
- Deal size and complexity (bigger is not always easier)
Common GAP structures
- Second lien / junior mortgage behind the senior loan
- Mezz / preferred equity style capital
- JV / equity partner joining the borrowing entity
Compensation can be flat rate interest, points, profit share, or a blended structure depending on lender and deal.
Tradeoffs
- Higher cost of capital than the senior loan
- Added complexity (intercreditor/JV terms, reporting, control rights)
- More scrutiny on budgets, timelines, and exits
Alternative: cover the gap instead of borrowing it
Credit stacking can be a strong alternative to GAP borrowing, using strategically timed applications to generate available capital and preserve project flexibility.