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Commercial Lending Partners: Get to Know the 504 Bridge Loan Program

Jan 2015

Did you know the 504 Bridge Loan Program provides funding to mitigate risk on second mortgage interim financing on Small Business Administration (SBA) 504 loans? Or that 504 commercial lending partners are entitled to retain servicing fees on 504 bridge loans?

What is the Purpose of the 504 Bridge Loan Program?

Alleviating risk. One of the most critical points for a commercial lending partner in an SBA 504 loan project is the interim phase of a project between the commercial lending partner's closing and the SBA takeout of the second mortgage, during which time the commercial lender is at risk on the second mortgage.

The 504 Bridge Loan Program addresses this exposure and timing difference by providing commercial lending partners with bridge loan funds to cover all or part of the second mortgage during the interim period of the project until the permanent SBA second mortgage takeout occurs.

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 that encourages states to establish or strengthen state programs that support lending to small businesses.

What Projects Are Eligible?

Bridge loan funds may be used for interim project financing of the second mortgage of authorized SBA 504 loan projects, including straight acquisitions, renovations or build-out projects, ground-up construction and/or fixed heavy duty machinery and equipment purchases.

What Are the Terms, Rates and Fees?

Loan Sizes - 504 bridge loan sizes range from $250,000 (recommended minimum) to $5 million (legal maximum). There is no limit on total project size.

Interest Rate - The second mortgage bridge loan and note will bear interest at a rate set by the commercial lending partner, at least equal to the rate applicable to the first mortgage note during the interim.

Origination Fees - For straight acquisition projects and projects with renovations, the commercial lending partner agrees to pay an amount equal to one half of the origination fee attributable to the second mortgage bridge loan or .5% (one half of one percent) of the principal sum of the bridge loan, whichever is greater. For ground-up construction projects, the origination fee is 1% (one percent) of the principal sum of the bridge loan.

Servicing Fee - The commercial lending partner is entitled to retain a servicing fee on the bridge loan of 1.25% during the first six (6) months of the term of the bridge loan, provided the bridge loan is not in default (straight acquisition projects and projects with renovations only; servicing fees are not applicable for ground-up construction projects).

Term - The initial term is six (6) months with automatic extensions with pricing adjustments.

What is Florida First Capital's Role in the Program?

504 bridge loans are processed by Florida First Capital, the state-appointed administrator of the program. Florida First Capital underwrites, prepares loan documentation, coordinates closings and provides bridge loan servicing.

Florida First Capital also has the most experience of any Certified Development Company in the state in generating 504 bridge loans. In fact, of the more than $30 million deployed thus far, Florida First Capital itself has generated over $20 million of that total amount.

What is Required to Participate?

504 commercial lending partners enter into a Participation Agreement with Enterprise Florida Inc., the participating lender. Interested commercial lending partners should contact a Florida First Capital loan officer for an application and other required documents. Email: info@ffcfc.com. Phone: 850.681.3601 or toll-free 888.320.5504.

Click here for complete 504 Bridge Loan information