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Most trade deals are not short of a lender. They are short of the last 10% to 30%. The bank or trade fund will finance most of a cargo, but not the trader's equity contribution, not the supplier's prepayment, and not the weeks between paying for the goods and getting paid for them. That shortfall stalls more transactions than credit quality ever does.
Gap funding and bridge loans exist to close it. This guide explains what they are, where the gaps come from, how the capital stack and repayment work, what lenders need to see and what it costs, with a diagram of the trade cycle and the capital stack behind it.
Gap funding covers the part of a trade the senior lender will not finance. If a trade finance bank advances 80% of the cargo value, the remaining 20% has to come from somewhere. If the trader cannot fund it from its own balance sheet, a gap lender can.
A bridge loan covers a period of time. It funds the trade until another source of money arrives, usually the buyer's payment, a senior facility that can only be drawn after shipment, or a receivables financing once the invoice is issued.
In practice one facility often does both. It is short-term, tied to a single transaction or a small number of them, and repaid from the sale proceeds of the goods. At market level, the Asian Development Bank estimated the global trade finance gap at USD 2.5 trillion in 2022, up from USD 1.7 trillion in 2020.
| Gap | Why it happens |
|---|---|
| Equity contribution | Senior lenders advance a percentage of the cargo value and expect the trader to fund the rest. |
| Supplier prepayment | Producers often want a deposit or full payment before loading, while the senior facility only draws against shipping documents. |
| Bank margin or cash collateral | Banks issuing payment instruments for newer traders often ask for a cash margin the trader cannot post. |
| Inventory haircuts | Lenders advance less than full value against goods in storage, leaving a shortfall to carry. |
| Payment terms mismatch | The buyer pays on 60 or 90 day terms, but the supplier and freight need paying now. |
| Timing between facilities | A new or increased facility is approved but not yet available, and the cargo cannot wait. |
The diagram shows where a gap opens in a typical physical trade, and how the capital behind the cargo is usually layered. Percentages are illustrative and vary by commodity, counterparties and lender.
The trade cycle
Contracts signed
Purchase from supplier and sale to buyer agreed
Supplier paid
Prepayment or deposit due before loading
Goods shipped
Freight, insurance and inspection paid
In transit or storage
Cargo held under the lender's control
Buyer pays
Proceeds flow into a controlled account
Illustrative capital stack
Repayment waterfall from sale proceeds
Funds the trader's required contribution so the senior facility can be drawn. See our page on trade finance equity bridge loans.
Pays the supplier before loading, repaid when the senior facility funds against shipping documents or when the buyer pays.
Tops up the advance against goods in a warehouse or tank, where the senior lender's haircut leaves a shortfall. Often paired with a borrowing base facility.
Funds the period between delivery and the buyer's payment on open account terms, until the receivable is paid or sold to a receivables financier.
Assignment of sale proceeds. The buyer is notified to pay into a collection account the lenders control, so repayment does not depend on the trader passing money on.
Security over the goods. The gap lender takes security over the cargo, usually ranking behind the senior lender under an intercreditor agreement.
Collateral management. An independent collateral manager or inspection company verifies quantity and quality and controls release of the goods under a collateral management agreement.
Insurance. Cargo insurance, and often credit insurance on the buyer, assigned to the lenders.
Offtake and margin coverage. Lenders underwrite the offtaker's credit, the delivery and pricing terms, and how comfortably the trade margin covers the full repayment waterfall.
Gap funding costs more than senior trade finance because it takes the riskiest slice of the deal. Pricing is usually quoted as a monthly rate or a share of the trade margin, plus arrangement fees, and tenors are short, typically matching one trade cycle of 30 to 180 days. Lenders size the facility against margin coverage. The trade margin has to absorb transaction costs, senior debt service and the gap lender's return, with headroom for price movements and delays.
What drives pricing. Gap lenders price most competitively for repeat flows with a documented performance history, assignable proceeds, clean title and independent control of the goods. Single-shipment, first-time corridors with thin margins sit at the top of the pricing range or outside appetite.
Gap lenders sit behind the senior facility, so their diligence is at least as deep. Most will expect the following before credit approval. Our full trade finance lender checklist covers each item in more detail.
| Area | What lenders typically require |
|---|---|
| Transaction documents | Executed purchase and sale contracts, pricing mechanism, Incoterms, delivery schedule, quality specifications and inspection terms |
| Senior facility terms | Senior lender term sheet or credit approval, advance rate, conditions to drawdown and intercreditor position |
| Transaction cash flow | A deal-level model showing every payment in and out, timing, margin and the repayment waterfall |
| KYC | Corporate documents, ultimate beneficial owners, directors, source of funds and sanctions and PEP screening on the borrower |
| KYCC | Know your customer's customer. Equivalent checks on the supplier and the offtaker, including ownership, sanctions exposure, trading history and credit standing. See our commodity supplier due diligence services. |
| KYT | Know your transaction. Verification that goods, documents and payments are consistent: pricing against benchmarks, vessel and route checks, port calls, document consistency and dual-use or sanctions red flags. See our KYT services. |
| Security and control | Assignment of proceeds, controlled collection account, security over goods, collateral management or inspection, cargo and credit insurance |
| Borrower financials | Audited or management accounts, existing facilities, aged receivables and payables, and track record on comparable flows |
Assembling this into a single, consistent package shortens credit timelines materially. Our trade finance due diligence report service prepares the diligence file lenders work from.
Financely is an advisor and arranger, not a lender. We structure the full capital stack for a trade, senior facility and gap funding together, prepare the documents and data room lenders need, and approach lenders whose appetite fits the commodity, corridor and size. See what a structured trade and commodity finance engagement delivers, or read more about trade finance bridge loans.
Tell us about the commodity, the contracts, the senior lender's terms and the gap you need to fill. We will review the transaction and set out how to structure it.
Gap funding is short-term capital that covers the part of a trade transaction the main lender will not fund, such as the trader's equity contribution, a supplier prepayment, a bank's margin requirement or the period between paying the supplier and being paid by the buyer. It is repaid from the proceeds of the trade.
The terms overlap. A bridge loan usually describes timing, funding a period until another source of money arrives. Gap funding usually describes size, funding the difference between what the senior lender advances and what the deal costs. In practice one facility often does both.
From the sale of the goods. Buyer payments go into a controlled collection account and are paid out in an agreed order, typically transaction costs first, then the senior lender, then the gap lender, with the balance to the trader.
Because it sits behind the senior lender, covers the riskiest part of the deal and is often used by traders with limited balance sheets. Pricing reflects that higher risk and the short tenor.
KYT, or know your transaction, checks that the goods, documents and payments in a trade are consistent and legitimate, including pricing, shipping routes and sanctions exposure. KYCC, or know your customer's customer, extends due diligence beyond the borrower to its suppliers and buyers.
No. Financely is an advisor and arranger, not a lender. It structures the transaction, prepares the lender package and arranges senior and gap financing from suitable lenders.
This article is for general information only and does not constitute legal, tax or investment advice. Capital stack percentages, costs and tenors are illustrative and vary by transaction and lender. Financely is an advisory and arranging firm, not a lender or broker-dealer. Any financing is subject to the lender's underwriting, due diligence, credit approval, documentation and conditions precedent, and no outcome or timeline is guaranteed.
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