Gap financing

The term of gap financing is used in the field and area of mortgage loans as well as property loans. It is given to fund the gap that arises between the amounts of floor loan that is disbursed and the amount of maximum permanent loan as has been committed. This amount that is committed under the head of floor loan is the amount that is related to the field of real estate. This is the minimal amount of loan that is permissible to be granted to a builder to enable him/her to commence construction on the site, and further the initial stage of the development of the project. The interest at which it is lent is also calculated on the amount that is actually disbursed to the real estate dealer or the builder. This loan is usually for construction of buildings that will be let out on rent.

There are also various other terms that are used synonymously for gap financing, such as interim financing or bridge loan. It is also named as swing loan. This is usually a short-term loan that is taken to bridge the shortage in funds faced by builders, until the company or the person is not able to attain a secure source of funding. Since this is a short-term loan, the interest rates are usually very high. Further it is a secured loan that is you would require submitting some collateral, such as some other property or inventory that you own. It is further the best option of acquiring immediate cash flow. The duration of this loan is usually one year.

The various kinds of lenders of this loan are the banks and other kinds of institutional lenders as well as individual creditors. The limit or the percentage of the total cost of the project, equal to which the bank would lend the builder loan is the amount of floor loan. The remaining percentage of the cost of project would be lent to you when the venture or the construction process has attained certain milestones. These may be the successful sale or lease of the almost-built property (whole or a major part of it) that would convince the lender that the project is indeed viable financially. This may also be the acquisition of a permit of occupancy. Thus the loan that is taken under gap financing is the loan that is availed of, to take care of the deficit in funds that arise out of the mismatch in the total cost of the project undertaken and the amount of loan that has been disbursed by the creditor as per floor loan.