Commercial Bridge Loans

A Strategic Tool for SBA 504 Borrowers and Lenders

Small businesses and lenders participating in the SBA 504 loan program are increasingly turning to commercial bridge loans as a vital financing tool. These short-term funding solutions, typically 12 – 36 months are often facilitated by specialized lenders, and serve to provide a short-term solution to borrowers who are in a time crunch on a real estate purchase, completion of property of improvements, or even ground up construction. At the same time, they offer lenders a strategic way to support their clients, mitigate risk, and facilitate smoother transactions by bridging the gap between immediate capital needs, escrow closing deadlines, and permanent SBA-backed financing.

Flexible Solutions for SBA 504 Transactions

Bridge loans offer businesses financial flexibility in situations where traditional financing is delayed:

• “Quick Close” Property Acquisitions: Bridge loans enable quick escrow closings, allowing borrowers to seize time-sensitive commercial real estate opportunities
• Zoning and Permitting Delays: For properties that require rezoning or conditional use permits, bridge loans offer interim financing while these processes are completed.
• Funding Construction and Improvements: Bridge loans finance property improvements or construction projects when traditional lenders are unable to provide an immediate construction loan. Once the project is complete, the SBA 504 loan serves as the permanent solution.

Lenders can support clients while mitigating risk, and businesses gain access to long-term financing with favorable terms, including repayment periods of up to 25 years, below-market fixed interest rates, and reduced equity contributions.

Mitigating Risks and Maximizing Benefits

While bridge loans provide significant advantages, businesses must carefully evaluate their financial position and repayment strategy. Interest rates on these loans are typically higher than traditional bank loans, so a clear plan for transitioning to permanent financing is essential.

Working with experienced lenders who understand the SBA 504 program can help businesses navigate the complexities of bridge financing. These lenders can structure loans to align with SBA requirements, ensuring a smooth transition once the long-term loan is secured.

Qualifying for a Bridge Loan

To be eligible for a bridge loan that will later be replaced by permanent SBA 504 financing, borrowers must meet specific criteria:

• The bridge loan term must not exceed three years. Preferably, interest only payments during the term of the loan.
• Detailed records of invoices and payments for all project costs must be maintained for the planned take out of the bridge loan.
• The project must align with SBA 504 eligibility requirements, including business size, net worth, and income qualifications.

The Future of Bridge Financing in the SBA 504 Ecosystem

As more businesses recognize the advantages of bridge loans, some lenders are likely to expand their offerings to meet increasing demand. New lending programs, state-backed initiatives, and private-sector innovations may further enhance accessibility, making it easier for small businesses to secure the capital they need to grow.

Borrowers should stay informed about any regulatory changes that may impact bridge loan eligibility, terms, and integration with the SBA 504 program. Working with knowledgeable lenders and financial advisors, like AmPac Business Capital can help businesses stay ahead of these shifts and make informed financing decisions.

Commercial bridge loans may serve as a critical financial strategy for businesses pursuing a commercial real estate purchase. By providing immediate access to capital, these loans empower businesses to act quickly on growth opportunities, overcoming financing delays and positioning themselves for long-term success in a competitive market.