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Frequently Asked Questions: 504 Bridge Loan Program for Commercial Lending Partners

Apr 2013

Answers to questions concerning program structure, project eligibility, loan sizes, term, interest rate, loan fees, servicing fee, repayment, how the process works and how to apply.

What Is the 504 Bridge Loan Program?

Under the Small Business Administration (SBA) 504 Loan Program, a commercial lenderspartners with a certified development company (Florida First Capital) to provide small business owners with up to 90% financing for the purchase of owner-occupied commercial real estate and/or fixed machinery and equipment.

Typically, a 504 loan is structured whereby a commercial lending partnerfinances 50% of the project and holds the first mortgage. Florida First Capital/SBA finances 40% of the deal and holds the second mortgage. The borrower provides a 10% down payment.

While the 504 loan is permanent, there is a gap between initial closing and the SBA “takeout” of the 40% second mortgage resulting in the commercial lending partnerproviding interim financing for the entire project.

As part of Florida's participation in the State Small Business Credit Initiative (SSBCI), the 504 Bridge Loan Program addresses this timing difference by reducing the interim risk forcommercial lending partners.

Through a Participation Agreement with Enterprise Florida, Inc., the 504 Bridge Loan Program provides commercial lending partners with loan proceeds (SSBCI funds) for the interim financing until the permanent SBA 40% second mortgage takeout occurs.

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

504 bridge loans are processed by Florida First Capital, working in conjunction with Enterprise Florida. 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 financing on 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.

On ground-up construction projects, it is the responsibility of the commercial lending partnerto manage the construction through completion or hire an approved third party vendor to manage construction through completion.

What Are the Terms, Interest Rates and Fees?

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

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 Enterprise Florida 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 to Enterprise Florida. 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 to Enterprise Florida on its interest and a payment to Enterprise Florida 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 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 504commercial lending partner. The commercial lending partnerwill remit the 5% less the servicing fee monthly for six (6) months.

Repayment - Bridge loan funds are repaid to Enterprise Florida through takeout via the 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 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, it is sent to Enterprise Florida for review. Following Enterprise Florida's approval, a Participation Agreement between the commercial lending partnerand Enterprise Florida is executed and 504 bridge loan funds are dispersed.

How Do I Apply for a 504 Bridge Loan?

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