Equity Gap Funding
Equity Gap Funding fills the shortfall between what the senior lender will provide and the total project cost. If a project costs $3M and the senior facility covers $2.1M (70% LTC), the $900K gap needs to come from somewhere — developer equity, mezzanine finance, or equity gap funding from a specialist funder.
Why It Matters
Many developers have the deal, the site, and the approval — but not enough cash equity to bridge the gap. Equity gap funding allows them to proceed without tying up all their capital in one project. It is a key structuring tool for developers who want to scale across multiple projects simultaneously.
How It Works
- Senior debt covers the majority of project cost (65–80% LTC).
- Equity gap funding covers the next layer — typically through mezzanine finance or a specialist equity funder.
- The developer contributes the remaining equity (often 10–20% of total cost).
- Equity gap lenders are typically repaid after senior debt from sell-down proceeds.
Common Use Cases
- Developers with approved projects but limited cash equity
- Townhouse developers running multiple projects concurrently
- Reducing cash contribution on a single project to preserve capital
- Layering alongside senior debt and mezzanine in structured deals
Related Switchboard Resources
Is equity gap funding the same as mezzanine finance?
They overlap significantly. Mezzanine finance is the most common form of equity gap funding, but the gap can also be filled by preferred equity, joint venture contributions, or specialist equity funds.
What does equity gap funding cost?
Rates are typically higher than senior debt — commonly 15–25% p.a. — reflecting the higher risk position. The funder sits behind the senior lender in repayment priority.
How much equity do I still need to contribute?
Even with equity gap funding, most lenders require the developer to contribute 10–20% of total project cost as cash or land equity. The exact requirement depends on the lender, project, and overall LTC.