What is GAP financing, and how it can help YOU.




If you're an entrepreneur, chances are you've been in the position where a little extra financing would go a long way. You've gone to the bank, tapped out any potential investors, and have allocated every penny you can spare to start your business, but you're still a bit short. Now what?

Time to explore gap financing. Gap financing can be a tool to use to help turn your business idea or expansion into reality. It refers to the gap needed when a lending institution cannot or will not loan you the full amount needed to complete your project. For example, you may want to start a business which will cost you $100,000, but your bank will only lend you $75,000. That leaves you with the problem of needed an additional $25,000- this is where gap financing comes in to fully fund your project.

Several cities and local economic development organizations (LDO) have revolving loan programs for this very reason. They recognize the challenges entrepreneurs often face when trying to obtain financing, and have financing programs which will loan you the money you need, to cover the portion your financing institution won't cover. There are even some communities which provide direct loans to businesses; meaning, even if you cannot obtain traditional financing, you may be eligible to receive a direct loan.

Why have you never heard of these programs? Why didn't your lending institution suggest this as a potential solution? Often times, cities and LDOs have a very limited marketing budget, and can't afford to reach out to every potential business owner to promote their program. Or, there could be one employee signed to an entire region (multiple counties) who's responsible to educate the entire area about the programs they offer, therefore odds are you're not the only person who hasn't heard about these programs.

At Decklan Group, we're familiar with the numerous financing programs available to business owners. From industrial manufacturers to dance studios, there are programs available to assist in purchasing large pieces equipment for industrial users, to purchasing an energy efficient HVAC unit for a small retail building. However, with these programs, comes extensive paperwork ,complicated review processes and a whole lot of waiting. Business owners often give up on obtaining gap financing for this very reason, because their time is best spent running their own business- that's where we come in.

We recently worked with Blue Egg Bakery, of downtown Elk River, Minnesota, and helped them get $74,500 from the Elk River Economic Development Authority (EDA) to move forward with their business idea, Blue Egg Sweets. The Elk River EDA has a revolving loan program, called the Micro Loan Fund, which provides both gap financing and direct loans to businesses in need of getting that extra financing to get their ideas off the ground.

Blue Egg Bakery is a bakery who specializes in donuts, cakes, cupcakes and breads. From bacon cheese croissants, to cherry moonshine bread, Blue Egg Bakery was ready to expand their offerings into specialty fudge, candy and larger, customized cakes, but didn't have the space. They had the business plan for Blue Egg Sweets, but needed that extra capital to turn their dream into reality.

They were able to purchase a vacant building in downtown Elk River, however needed financing to complete interior remodeling necessary for their new operations. Built in 1900, the building needed new walls, interior improvements and facade improvements. Being familiar with the Elk River EDA Micro loan program, we acted as the liaison for Blue Egg Bakery during the application process, and worked one on one with city staff up to approval of the loan, and continued to navigate the twists and turns which evolved up until the closing of the loan. Because of our involvement, Blue Egg Bakery was not only able to focus on their existing business, but they were able to avoid the added stress and headaches that working with government entities can often cause business owners.

Blue Egg Bakery was ultimately awarded $74,500 at 2% interest, 10 year term and 10 year amortization. This was a direct loan to the business, from the EDA and was a prime example of how a city worked with a small business owner to provide them what they needed to survive and grow in a competitive economy. In addition to bringing a new business downtown, Blue Egg Sweets also created three new jobs for the Elk River community.

Blue Egg Sweets website and Facebook page are currently under construction, but in the interim, check out their bakery's Facebook page- you may just want to stop in Elk River to try out one of their many delicious treats!