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FAQs: How Does the 504 Bridge Loan Program Benefit SBA 504 Commercial Lending Partners?

Feb 2014

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

The 504 Bridge Loan Program addresses this 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.

What Is the 504 Bridge Loan Program?

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.

504 bridge loans are processed by Florida First Capital. Florida First Capital underwrites, prepares loan documentation, coordinates closings and provides bridge loan servicing.

What Projects Are Eligible for the 504 Bridge Loan Program?

Bridge loan funds may be used for interim project financing of the second mortgage of authorized SBA 504 loan projects, including owner-occupied commercial real estate (turn-key acquisitions, renovation or build-out projects and ground-up construction) and/or fixed machinery and equipment purchases.

What Are the Terms, Interest Rates and Fees?

Bridge Loan Sizes - $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 Fee - The commercial lending partneragrees to pay an amount equal to one half of the origination fee attributable to the second mortgage bridge loan or .25% (one quarter of one percent) of the principal sum of the bridge loan, whichever is greater.

Commercial Lending Partner Servicing Fee - The commercial lending partneris 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. The servicing fee shall be a portion of interest payments made by the borrower equal to 1.25% divided by the non-default annual interest rate payable on the bridge loan.

For example, assume the borrower's monthly interest payment on the second mortgage bridge loan is $1,000 at an interest rate of 5%. By utilizing the described calculation (1.25% ÷ 5%), the commercial lending partnerwould retain 25% of the total interest collected ($250) as the servicing fee.

Term - The initial term of the bridge loan is six (6) months. If the 504 loan has not funded by expiration of the initial six (6) month term, the second mortgage bridge loan will be automatically extended at six (6) month increments with the following pricing adjustments:

Upon the extension of the term, the servicing fee on the bridge loan ends.

If the term of the second mortgage bridge loan is extended beyond one year, the extension is automatically granted in consideration of a one-time increase of 2% in the rate of interest payable on the second mortgage note, and a payment of .25% (one quarter of one percent) of the principal sum of the bridge loan at the beginning of each six (6) month extension.

Funding - Assuming participation interest of 100% of the second note, funds from the bridge loan must comprise between 45% and 75% of the total amount of loan funds disbursed at all times during the interim.

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

How Does the Process Work?

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 commercial lending partnerprovides Florida First Capital with its internal credit write up and commitment letter and a completed IRS Form W-9.

If the project includes any renovations or construction, the commercial lending partnerprovides Florida First Capital with its internal construction monitoring and disbursement policy. The contractor supplies a resume, proof of insurance or bond and estimate of time frame for project completion.

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

How Do I Apply for a 504 Bridge Loan?

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. Phone: 850.681.3601 or toll-free 888.320.5504. Email: info@ffcfc.com.