June 2020
Commercial Lending
504 Bridge Loan Program Helps to Further Mitigate Risk for SBA Lending Partners

In today’s current economy and lending environment, commercial mortgage lenders are seeking creative ways to continue lending to small businesses, but also mitigate potential risk to their loan portfolios.  One excellent – and very popular – option is the Small Business Administration (SBA) 504 Loan Program with its distributed credit structure.  Another valuable resource is the 504 Bridge Loan Program, which helps alleviate risk for lending partners during the interim phase of a 504 project.

SBA Lending Partners Benefit from 504 Bridge Loan Program ParticipationWith an SBA 504 loan, the deal structure typically works like this: a commercial lending partner provides financing for 50% of the 504 loan and takes a first lien position; Florida First Capital/SBA provides 40% of the project financing and takes a second lien position; and the borrower provides a down payment of just 10% in most cases.

When a 504 loan is closed and funded, the SBA provides permanent – or takeout financing – for first mortgage lending partners.  But, before that occurs the first mortgage lending partner in a 504 deal typically provides temporary funding to cover the interim phase of a project – the period between the lending partner’s closing and the SBA’s takeout of the second mortgage, during which the lending partner is at risk on the second mortgage.

There are times, however, when a first mortgage lending partner initiates a 504 loan, but elects not to fund the interim second mortgage due to external, internal and/or project based reasons like internal policy guidelines, legal lending limits or because of the property type.

That’s where the 504 Bridge Loan Program becomes a valued alternative for first mortgage lending partners.  The program, which is available for any Florida SBA 504 loan, addresses the exposure and timing difference by providing a first mortgage lending partner with bridge loan funds to cover the second mortgage during the interim period of the project until the permanent SBA second mortgage takeout occurs.

Bridge loan funds may be used for straight acquisitions, renovations or build-out projects, ground-up construction and/or fixed heavy duty machinery and equipment purchases.  504 bridge loan sizes range from $250,000 (recommended minimum) to $5 million (legal maximum).  Generally, the total project limit is $20 million.

The initial term of the bridge loan is 6 months.  If the 504 loan has not funded by expiration of the initial 6-month term, the second mortgage bridge loan will be automatically extended at 6-month increments with pricing adjustments applicable once the loan matures past 1 year.

504 lending partners may also earn servicing fees on the bridge loan during the initial 6-month term.  (Note: straight acquisition projects and projects with renovations only; servicing fees are not applicable for ground-up construction projects.)

The 504 Bridge Loan is non-recourse to the lending partner.  Bridge loan funds are repaid through takeout via the SBA 504 loan.

To date, the 504 Bridge Loan Program has committed and/or deployed more than $136 million in interim phase project financing.

Frequently Asked Bridge Loan Questions

504 Bridge loans are provided by the Florida Department of Economic Opportunity and processed by Florida First Capital.

Interested 504 first mortgage lending partners should contact a Florida First Capital Loan Officer for a bridge loan application and other required documents.  Phone: 850.681.3601 or toll-free at 800.504.LOAN.