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504 Bridge Loan Program Provides Relief to Lending Partners from Interim Financing Risk

Oct 2013

For a commercial lending partner in a Small business of Administration (SBA) 504 loan, one of the most critical stages is the interim phase of a project between their closing and the SBA takeout of the second mortgage, during which time the commercial lending partneris at risk on the second mortgage.

The 504 Bridge Loan Program address this timing difference by providing 504 commercial lending partners with loan proceeds for all or part of the interim financing until the permanent SBA second mortgage takeout occurs.

Under the program, 504 commercial lending partners enter into a Participation Agreement with Enterprise Florida Inc., which, in partnership with the Florida Department of Economic Opportunity, administers the program.

504 bridge loan proceeds are provided as part of a $97.6 million allocation from the U.S. Department of Treasury for the state of Florida's participation in the State Small Business Credit Initiative (SSBCI). The SSBCI is a federal initiative of the U.S. Small Business Jobs Act of 2010 that encourages states to establish or strengthen state programs that support lending to small businesses.

Florida First Capital manages the back office administration of the 504 Bridge Loan Program and has the most experience of any Certified Development Company in the state in getting 504 bridge loans done.

Project Eligibility

504 Bridge Loan Program funds may be used on authorized SBA 504 loan projects including turn-key acquisitions, renovation or build-out projects, ground-up construction and/or fixed heavy duty machinery and equipment purchases.

Terms, Interest Rates and Fees

Loan Sizes - $250,000 (recommended minimum) to $5 million (legal maximum).

Term - The normal term permitted is six (6) months; however, the Participation Agreement allows for extensions with pricing adjustments.

Interest Rate - The interim loan and note bear interest at a rate at least equal to the rate applicable to the term loan.

Loan Fees - The 504 commercial lending partneragrees to pay an amount equal to one half of the origination fee attributable to the interim loan or .25% (one quarter of one percent) of the principal sum of the interim loan, whichever is greater. If upon the expiration of the six (6) month term the 504 loan has not funded, the term will be automatically extended under the following conditions:

During the first six (6) months of the extension of the term, 100% of interest payments on the interim loan will be due. Should further extension be required beyond the first year, such extension will be automatically granted in consideration of a one-time increase of 2% in the rate of interest payable on the interest and a payment of .25% of the principal sum of the interim loan at the beginning of each six (6) month extension beyond the first year of the term.

Lending Partner Servicing Fee - The 504 commercial lending partneris entitled to retain a servicing fee during the first six (6) months of the interim loan provided the interim loan is not in default. Such servicing fee is a portion of interest payments made by the borrower equal to 1.25% divided by the non-default annual interest rate payable on the interim loan. For example (assumes an interim note rate of 5% and a borrower interest payment of $1,000): servicing fee = 1.25% / 5% = ¼ or 25% of payment ($250) retained by the commercial lending partner. The commercial lending partnerwill remit the 5% less the servicing fee monthly for six (6) months.

Repayment - Bridge loan funds are repaid through takeout via the 504 loan.

The Process

Following the normal underwriting and approval process of the SBA 504 loan, Florida First Capital distributes a borrower certification and lender certification for signature. The 504 commercial lending partnerwill need to provide Florida First Capital with their internal credit write up and commitment letter and complete an IRS Form W-9.

If the project includes any renovations or construction, the commercial lending partnerwill need to provide Florida First Capital with their internal construction monitoring and disbursement policy. The contractor will need to supply a resume, proof of insurance or bond and estimate of time-frame for project completion.

Once the bridge loan documentation is completed and approved, a Participation Agreement with the commercial lending partneris executed and 504 bridge loan funds are dispersed.

How to Apply for a 504 Bridge Loan

Interested 504 commercial lending partners should contact a Florida First Capital loan officer for an application and other required documents. Click here to locate one of our loan officers in your local area. Email: info@ffcfc.com. Phone: 850.681.3601 or toll-free 888.320.5504.