Gap Funding 101 – Building a Capital Stack That Works
In today’s development landscape, very few projects are 100% financed with equity. Especially in the affordable and impact development sectors, gap funding is essential to bridge the divide between total costs and committed capital. But how does it work?
Understanding the Capital Stack
The capital stack refers to the layers of capital that finance a project:
- Senior Debt (first lien loans)
- Mezzanine Debt
- Preferred Equity
- Developer Equity
- Grants/Subsidies/GAP
What is Gap Financing?
Gap funding refers to the portion of the capital stack not covered by traditional financing. This can include:
- Tax credits (LIHTC, NMTC)
- TIF (Tax Increment Financing)
- PACE (Property Assessed Clean Energy)
- Local housing trust funds or philanthropic grants
- Soft second loans from local housing authorities
Why It Matters
Without gap funding, many community-benefit projects—like senior housing or mixed-use affordable developments—would never break ground. Projects with a mission-aligned purpose often struggle to secure traditional lending at competitive rates. Gap tools make these visions viable.
How Eluvial Helps
We structure public-private capital stacks, coordinate with housing agencies, and prepare financial pro formas that meet investor and lender standards. Our team has experience with layered financing packages and grant writing for federal and local gap funding programs.
Need help building your project capital stack? Let’s talk
