In the world of commercial lending, there are many different aspects to consider. Those who offer financing solutions and partner with SBA loans know that there is a certain risk between the time they fund their portion of the loan and the time the SBA remits funds to complete the loan. With Florida bridge loans, the opportunity arises to reduce that risk in an effort to fill the gap during the interim in funding.
The SBA Loan Commitment
Commercial lenders that partner with the SBA, or the Small Business Administration, take on a certain responsibility. With these types of loans, the commercial lender funds 50% of the project. The SBA funds 40% of the project. The borrower then funds the remaining 10%.
However, when the loan closes, what typically happens is the commercial lender provides the total 90% financing immediately and then awaits reimbursement from the SBA. The alternative is that they fund 50% up front and then wait for the SBA funding. The challenge is SBA funding does not remit until after closing, putting the commercial lender on the hook.
Generally speaking, most lenders use a second mortgage to fill the gap for the SBA’s 40%. However, this puts the lender at risk for those dollars until the SBA comes through.
The Florida Bridge Loan Advantage
In this type of situation, a bridge loan can be a huge benefit. It helps to reduce much of the risk, while still ensuring the funds are made available to the borrower. Much like the name suggests, the bridge loan bridges the gap between the initial funding and the SBA funding.
There is no exact science as to how long it takes the SBA to fund following approval. The funding can take anywhere from 7-90 days, which can cause a significant gap. Most commercial projects that utilize SBA loans use high dollar values, which is why it becomes such a burden for the commercial lender trying to fill the gap.
When a borrower is taking out an $18 million loan, the SBA portion is generally $5 million. That’s a substantial gap in funding to wait up to 90 days to receive.
In Comes the Bridge Loan
The bridge loan opportunity is a specialized offer specific to SBA funding for commercial projects. This Florida loan is generally set for a six-month term and can be extended if necessary. The intention is to provide that interim gap in funding for the SBA portion.
The lender is still responsible for the loan portion, but it is a far better situation. The interim financing is covered so that the borrower can continue with their needs, and the bank is covered with this temporary solution as well. When the SBA funds come in, the bridge loan is paid off with those funds.
Florida bridge loans are designed to help reduce risks for the commercial lender as the SBA portion of the loan is completed and fulfilled. The benefits come in handy for both the commercial lender and the borrower with this interim solution.
