Funding gap

A funding gap is the hole between what something costs and the money lined up to pay for it. It’s the figure left over once you’ve counted your own cash and the amount your main lender has agreed to advance. If that number is above zero, the deal can’t complete until something fills it.

They crop up in many settings: buying a business, purchasing commercial premises, a fit-out that ran over budget, or a growth plan that needs more stock and staff than the bank will fund.

How to measure your funding gap

The arithmetic is simple. Getting the inputs right is the hard part.

Funding gap = total cost − cash you’ll contribute − amount the main lender will advance

Owners most often understate the first figure. Total cost should include:

• the purchase price or project budget
• stamp duty, legal, valuation and settlement costs
• lender fees on the main loan
• working capital to keep things running in the early months
• a contingency margin for things that run over

And they tend to overstate the third. A lender’s indicative figure can shrink after valuation or once it applies its loan-to-value ratio limit. Measure the gap against the approved amount, not the hopeful one.

A worked example

An owner is buying an established café business for $600k. Stamp duty, legal and accounting costs add about $25k, and they want $40k of working capital, so the total need is $665k.

They have $180k of their own cash. Their bank approves $380k, secured over the business and a guarantee. The gap is $665k − $180k − $380k = $105k.

Options they weigh:

1. Vendor finance. The seller agrees to accept $80k of the price over two years. This also signals the seller’s confidence in the business.
2. A second mortgage on their home for the remaining $25k, if the bank consents.
3. Trimming the plan. Cutting working capital to $15k closes the last $25k, but leaves little buffer for a slow first winter.

They pick the first two. The bank’s approval stays intact, and the seller’s stake keeps the handover cooperative.

Short of a five or six-figure sum to complete a deal? Let us know the shortfall and we’ll look at what can fill it.

The wider funding gap for small business

Economists also use “funding gap” to describe a shortfall across the whole economy. In its September 2018 Bulletin, the Reserve Bank found that around one-fifth of businesses reported finding finance relatively hard to access, and that banks were reluctant to lend without real estate as security. It concluded there appeared to be a funding gap for established small businesses that couldn’t raise more debt or attract venture capital.

The picture has shifted since. The RBA’s October 2025 Bulletin reported improving access and strong growth in non-bank lending to SMEs, but still noted that about one in five SMEs had struggled to obtain finance, with collateral requirements among the common hurdles.

Related terms

Mezzanine debt, vendor finance, equity, settlement and working capital. For timing problems rather than total shortfalls, see covering a cash flow gap.

Is a gap holding up your deal?

A shortfall of even a modest amount can stall a purchase that’s otherwise sound, and the clock rarely waits while you sort it. We regularly help owners whose bank has said yes to most of the money but not all of it. Telling us about your deal takes about a minute, and that first step does nothing to your credit score. We don’t hand your file to a parade of lenders; a member of our team goes through your numbers and rings you directly. Give us the real figures, including the approved amount, so we can point you to something that closes the gap first go.

Fill the funding gap →