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

The 504 Bridge Loan Program, available for any Florida SBA 504 loan, addresses this exposure and timing difference by providing commercial lending partners with bridge loan funds to cover the second mortgage until the permanent SBA second mortgage takeout occurs.

Financed by the Florida Department of Economic Opportunity (DEO), Florida First Capital administers the program on behalf of DEO. All Florida Certified Development Companies (CDCs) may participate.

504 bridge loan proceeds are allocated 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 that encourages states to establish or strengthen state programs that support lending to small businesses.

NOTE: The 504 Bridge Loan Program is available in Florida only.

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 heavy duty machinery and equipment purchases.

Bridge Loan Sizes – Loans amounts are generally capped at $5 million (SBA portion).  Certain eligible energy-efficient or manufacturing projects may qualify for up to $5.5 million, in line with SBA standards.  Generally, the total project limit is $20 million. (This restriction applies to the principal amount of the loan directly supported by the 504 bridge loan, plus all other loans for the same loan purpose that close on or about the same date.)

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.

Commercial Lending Partner 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). 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 partner would 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 extension of the term, the servicing fee the commercial lender is entitled to retain on the bridge loan ends (this provision applies to non-ground-up construction projects only).
• If the term of the second mortgage bridge loan is extended beyond one year (and for every 6-month period of extension thereafter), there will be a 0.25% (one quarter of one percent) extension fee.

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.

Recourse – The 504 Bridge Loan is non-recourse to the permanent lender.

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

504 bridge loans are provided by the Florida Department of Economic Opportunity and Enterprise Florida and processed by Florida First Capital

Following the normal underwriting and approval process of the SBA 504 loan, Florida First Capital distributes a borrower certification for signature. The commercial lending partner provides Florida First Capital with its internal credit write up and commitment letter.

If the project includes any renovations or construction, the commercial lending partner provides 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 partner is executed and bridge loan funds are disbursed.

Call your CDC lender!

• CDC provides FFCFC with the Loan Authorization, SBA credit file, the commercial lender’s credit write-up and lender’s commitment letter.
• FFCFC provides the lender and borrower will certifications.
• For construction, the commercial lender provides the FFCFC with its construction monitoring and disbursement policy.
• Once approved by DEO, a Participation Agreement is executed, and the proceeds are available for disbursement.