As traditional bank lending remains difficult to access, CRE investors have increasingly looked to explore alternative funding options. 

Those learning how to buy commercial property with little money are exploring seller financing, cash substitutes, seller-provided down payment, and rent-to-own leases, among others. 

Gap funding is another funding option that has proved popular. 

Investors have used it as a way to meet the shortfall when the amount raised for an acquisition or a development falls short of what is needed. It can be used to cover earnest money deposit (EMD), closing costs, down payment, or a part of the property’s price. 

Though many will complain that gap funding is more expensive than traditional bank lending, the benefits far outweigh this con. Below are 4 of the most important benefits. 

1.Quick access to needed funds

In competitive markets, quick access to necessary funds is a competitive advantage. 

Consider two investors interested in the same property. A is taking the time to work on a traditional bank loan, while B uses hard money lending to secure the major part of the property’s cost and gap funding for the remainder. 

It’s obvious that Investor B would be ready to pay for the property before Investor A can even get all the documents required by the bank. 

2.Increases return on investment (ROI)

When the amount raised for a project falls short of what is required to complete it, the other alternative is for the investor to use personal funds or dilute the equity of the project by relying on funds from another investor. 

However, anyone familiar with the concept of leverage understands that using other people’s money in a way that does not dilute your equity will help to increase your return on investment (ROI). 

For example, if you used only $1 million of your money for a project where you made $4,000,000 after paying off the loan, your ROI is 400%. If you had to use only $500,000 of personal money, your ROI increases to 800%. 

3.Reduces exposure to market fluctuations

Gap funding helps ensure that your projects don’t stall due to a temporary cash shortage. 

This is important because prices of materials can increase during the period that a project stalls. If this goes on for long, the project’s profitability may be significantly affected. 

Similarly, in competitive markets, gap funding ensures that you don’t lose a good property to competitors or face a higher price due to delays in securing needed funding.

4.Lower barrier to entry

Gap funding is more accessible than traditional loans. 

Also, they are more flexible as you can negotiate some of the repayment terms with the lender. For example, you can request a longer repayment window at the cost of a higher rate, and vice versa. 

Such flexibility ensures that you can secure a funding arrangement that meets your needs at different periods. 

If you need flexible gap funding to cover earnest money deposits, Duckfund is the financing company you can trust. 

You can complete an application in two minutes and get the EMD sent to the escrow within 48 hours.  Duckfund will also support multiple deals and even allow you to suggest higher EMD rates in competitive markets. 

Also, you can secure senior debt financing with Duckfund. They provide up to 75% loan-to-cost (LTC) or 70% loan-to-value (LTV) for deals in multifamily, industrial, and hospitality sectors. 

If you need a funding company that will support you at every step of your CRE investing and development journey, Duckfund definitely fits the bill. 

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