Many small businesses find that they need help with gap financing, also known as bridge financing. This type of financing is short term, and used when the company has the opportunity to expand or to provide cash flow in the period of time between bond issues.

There are a variety of lenders that offer gap financing, including venture capitalists, asset based lenders and commercial lenders. Before you approach a lender for gap financing information, have all your financial information organized. There are a few things you need to have on hand before approaching a lender, such as:

1. Information on your business and what qualifies you to manage that business. Include information on your education and how much you've invested of your own capital in the company.

2. Accurate, up to date financial records for your company.

3. Information on how you plan to spend the gap financing. The lender will want to know exactly what your plans are for the money and when you plan to repay the loan.

Action Steps
The best contacts and resources to help you get it done

Use a gap financing consultant when you shop for funding

A consultant is trained to find funding for your company. An experienced consultant will provide gap funding advice, help put together your financial information and go after the funding that best meets your needs.

I recommend: The Institute for Entrepreneurial Excellence provides a variety of consulting services for businesses in search of financing, including gap financing. If finances are tight, SCORE offers free consultations from retired business executives. Their advice includes information on funding issues, such as gap financing. Use the websites tip section to get you started and then contact the group when your ready to get your own consultation.

Have a plan for paying back gap financing

Look for regional help from economic development agencies when you need to repay your business loan. Many of these are non-profits that offer very favorable terms. They are also trained in helping businesses secure funding and can offer gap financing advice.

I recommend: Union County Economic Development Corporation (UCEDC), in New Jersey, and the Southwestern Illinois Community Development Authority (SWIDA), based in Illinois, are two examples of regional economic development agencies that provide capital as well as gap financing training. You can find your local economic development agency in the Economic Development Directory.

Utilize gap financing to expand or relocate your business

When you're ready to move into larger quarters, gap financing provides you with money to purchase new property before your existing space is sold. You'll pay off the gap loan with the sale of the existing property.

I recommend: Choose a company that specializes in gap financing for mortgages, such as Madison Realty Capital or 1st Bridge. Use a commercial mortgage calculator, like the one at Financial Planning Toolkit, to determine how much the loan will cost.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  If you have a strong existing relationship with a current lender, approach them first for gap financing. It could save you time and allow you to obtain a better rate than starting out with a new company.