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Reduce Interim Project Second Mortgage Risk with the 504 Bridge Loan Program

Jul 2015

The Small Business Administration (SBA) 504 Loan Program is a great fixed asset financing tool for commercial lenders because typically they are only at risk on the 50% first mortgage. However, during the interim phase of a 504 project between the commercial lending partner's closing and the SBA takeout of the second mortgage, the commercial lending partner is at risk on the second mortgage as well.

It's not unusual for a commercial lending partner to initiate an SBA 504 loan, but choose not to fund the interim second mortgage due to external, internal and/or project based reasons, such as legal lending limits, internal policy guidelines or because of the property type.

In these situations, the 504 Bridge Loan Program available through Florida First Capital can make the loan workable. The program provides 504 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 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 504 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 504 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 504 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.

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 shouldcontact a Florida First Capital loan officerfor 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

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.