When financing commercial real estate, acquisition, construction or rehab, there’s usually a requirement to inject cash into the deal. For example, if you wish to construct and sell a $20 million office building, your typical financing would require you to put up cash. This is typically ranges from 20% to 40% ($1 to $2 million) cash into the deal. The loan would be a first-position construction loan or bridge loan. But, if you’d like to reduce the amount of your own cash down payment, you can supply the cash via gap funding. In other words, gap funding “plugs the gap” arising from the primary loan’s LTC or LTV requirements and your cash on hand.


We simply provide this article as a helpful resource to those curious about the topic. However, we do provide numerous other commercial financing solutions, which you may find by clicking on the Hamburger Menu (the 3 lines) in the right-hand corner above on this page, then click on Services.

What Is Gap Funding?

Unlike construction, acquisition and bridge financing, gap funding is a junior-position loan. This means that the lender enforces the gap-funding lien on your property. But only after the primary lienholder receives repayment, should a default occur. Gap funding can reduce your requirement to inject cash into the deal. It does this by providing a way to achieve higher than normal LTC financing. In return, you agree to share some of the profit (sometimes greater than 50%) with the provider of gap financing. Gap funding is appropriate when you plan to sell the property after construction or rehab, so that the gap lender can collect its profit share.

Video: Important Considerations for Real Estate Gap Funding

Pros and Cons of Gap Funding

Gap funding can play an important part in your investment strategy. But first, you need to understand its advantages and disadvantages.

Pro: Freeing up Your Cash

Through gap funding, you can increase the number and/or size of your deals, since you avoid cash constraints you’d otherwise face. This can produce an overall increase in your revenues and profits, enabling you to grow your business faster. For sizeable deals, you can make a good profit even after sharing it with the gap lender.

Pro: Reducing Cash Outflow

A nice feature of gap financing is that you can wrap the interest payments from the primary loan into the gap loan. For example, suppose you take a 12-month, interest-only construction loan with a balloon payment at the end of the term. You might be able to prepay, through escrow, the first six interest payments using the proceeds from a gap loan. This arrangement might allow you to obtain a lower interest rate on the primary loan. And, it can relieve you of your immediate debt service obligation on the primary loan.

Pro: Facilitating the Primary Loan

Suppose your primary loan is from a hard money lender willing to fund up to 60% LTV of your rehab project. Gap funding doesn’t threaten your hard money lender, since the lender will maintain its primary lien position. Furthermore, if as suggested above, you can wrap the hard money loan interest charges into the gap loan. The hard money lender has a positive incentive to make the primary loan.

Pro: Sharing the Risk

From time to time, a real estate project might produce less profit than anticipated. If you use gap funding, up to half of the profits go to the gap lender. In other words, you share the risk of a smaller profit or even a loss with the provider of gap financing.

Con: Sharing the Reward

The flip side of risk-sharing is reward-sharing. With gap funding, you must forego up to half of your profit in return for a zero-cash deal. If the deal makes economic sense to you even after sharing the profit, then the benefits of conserving your own cash might easily outweigh the profit haircut you must take.

Con: Higher Cost

Gap funding providers charge higher interest rates and fees than do primary lenders. That’s because they assume the extra risk incurred by a junior lien (a subordinate lien). For example, you might take a primary rehab loan at 10% and 1 point. However, if you were to add on gap funding, you’d might face a 12% interest rate, an upfront fee of 4 points, and an equity share of 50%. Therefore, you must work out the profitability of the deal in light of the incremental costs presented by gap funding.

Gap financing provides borrowers with capital for down payments

When Should I Use Gap Funding?

Gap funding makes sense when any or all of the following are true:

  • The real estate project is high-end (at least $20 million) and will produce a sizeable profit.
  • You don’t have enough cash to bring to the deal, or you simply want to conserve your cash.
  • You want to avoid out-of-pocket interest payments on the first loan by wrapping them into the gap loan.
  • It’s taking longer than expected to finish constructing or rehabbing a property and you need extra money to complete the job.
  • The property is taking longer to sell than anticipated and you need relief from monthly interest payments.
  • You are looking to maximize your cash on cash yield.
  • You can finance the project without gap funding, but prefer to get a gap loan in order to remain liquid should another opportunity present itself.


You can rely on Assets America® for primary financing on your real estate projects (NOT GAP FUNDING). Our funding starts at a bare minimum loan size of $20 million. Our extensive network of institutional and private funding sources can help you achieve your financing goals. Your best deal arises when you obtain all of your primary and sometimes secondary financing from us, as we can offer continuity of funding.

Apply For Financing

Related Articles


Eric D.
Pleasure to work with and extremely knowledgeable

Ronny was a pleasure to work with and is extremely knowledgeable. His hard work was never ending until the job was done. They handled a complex lease and guided us through entire process, including the paperwork. Not to mention a below market lease rate and more than all the features we needed in a site. We later used Assets America for a unique equipment financing deal where once again Ronny and team exceeded our expectations and our timeline. Thank you to Assets America for your highly professional service!

exp MFGroup
Great experience with Assets America

Great experience with Assets America. Fast turn around. Had a lender in place in 30 minutes looking to do the deal. Totally amazing. Highly recommend them to anyone looking for financing. Ronny is fantastic. Give them a call if the deal makes sense they can get it funded. Referring all our clients.

William P.
Assets America guided us every step of the way

Assets America guided us every step of the way in finding and leasing our large industrial building with attached offices. They handled all of the complex lease negotiations and contractual paperwork. Ultimately, we received exactly the space we needed along with a lower than market per square foot pricing, lease length and end of term options we requested. In addition to the real estate lease, Assets America utilized their decades-long financial expertise to negotiate fantastic rates and terms on our large and very unique multimillion dollar equipment purchase/lease. We were thankful for how promptly and consistently they kept us informed and up to date on each step of our journey. They were always available to answer each and every one of our questions. Overall, they provided my team with a fantastic and highly professional service!

Bob B.
The company is very capable, I would recommend Assets America

Assets America was responsible for arranging financing for two of my multi million dollar commercial projects. At the time of financing, it was extremely difficult to obtain bank financing for commercial real estate. Not only was Assets America successful, they were able to obtain an interest rate lower than going rates. The company is very capable, I would recommend Assets America to any company requiring commercial financing.

Ricardo L.
Assets America was incredibly helpful and professional

Assets America was incredibly helpful and professional in assisting us in purchasing our property. It was great to have such knowledgeable and super-experienced, licensed pros in our corner, pros upon which we could fully rely. They helped and successfully guided us to beat out 9 other competing offers! They were excellent at communicating with us at all times and they were extremely responsive. Having them on our team meant that we could always receive truthful, timely and accurate answers to our questions. We would most definitely utilize their services again and again for all of our real estate needs.

Assets America is a great company to work with

Assets America is a great company to work with. No hassles. Recommend them to everyone. Professional, fast response time and definitely gets the job done.

DAC Team
Great experience

Ronny at Assets America has been invaluable to us and definitely is tops in his field. Great experience. Would refer them to all our business associates.

MF Group
We were very pleased with Assets America’s expertise

We were very pleased with Assets America’s expertise and prompt response to our inquiry. They were very straight forward with us and helped a great deal. We referred them to all our business associates.

Manny C.
Worked with this company for decades

I’ve worked with this company for decades. They are reputable, knowledgeable, and ethical with proven results. I highly recommend them to anyone needing commercial financing.

David B.
Top-notch professional

Ronny was incredibly adept and responsive – top-notch professional who arranged impressive term sheets.

Monte M.
Assets America helped us survive a very difficult time

Assets America helped us survive a very difficult time and we most definitely give them 5 stars!

Brent G.
Gave me direction to go

Ronny was very friendly and though we were unable to make something happen at the moment he gave me some direction to go.

Allan E.
Highly recommend them for any type of commercial financing

My business partner and I were looking to purchase a retail shopping center in southern California.  We sought out the services of Ronny, CFO of Assets America.  Ronny found us several commercial properties which met our desired needs.  We chose the property we liked best, and Ronny went to work. He negotiated very aggressively on our behalf. We came to terms with the Seller, entered into a purchase agreement and opened escrow.  Additionally, we needed 80 percent financing on our multimillion-dollar purchase.  Assets America also handled the commercial loan for us.  They were our One-Stop-Shop. They obtained fantastic, low, fixed rate insurance money for us.  So, Assets America handled both the sale and the loan for us and successfully closed our escrow within the time frame stated in the purchase agreement.  Ronny did and performed exactly as he said he would. Ronny and his company are true professionals.  In this day and age, it’s especially rare and wonderful to work with a person who actually does what he says he will do.  We recommend them to anyone needing any type of commercial real estate transaction and we further highly recommend them for any type of commercial financing.  They were diligent and forthright on both accounts and brought our deal to a successful closing.