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Simple English definitions for legal terms
gap financing
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A quick definition of gap financing:
Gap financing is a type of temporary loan used to fill the gap between two long-term loans. It helps to fund the difference between a current loan and a loan that will be received in the future. For example, if someone needs money to buy a house but is waiting for their old house to sell, they might use gap financing to cover the difference until they receive the money from the sale of their old house.
A more thorough explanation:
Gap financing is a type of interim financing used to fund the difference between a current loan and a loan to be received in the future, especially between two long-term loans. It is a short-term loan that helps bridge the gap between the money needed and the money available.
Suppose a person wants to buy a house, but they have only been approved for a mortgage loan that covers 80% of the house's value. They need to come up with the remaining 20% to complete the purchase. In this case, they can apply for gap financing to cover the difference.
Another example is when a company needs to finance a project, but they have only secured a portion of the required funds. They can use gap financing to cover the remaining amount until they secure permanent financing.
These examples illustrate how gap financing can be used to fill the gap between the money needed and the money available, allowing individuals and companies to complete their projects or purchases.