Bridging the Gap with a Bridge-to-Agency Loan For Multifamily Properties

Agency-based loans through the Federal Housing Administration (FHA), also known as HUD, Fannie Mae, and Freddie Mac have plenty of advantages, making them the preferred long-term financing option for many investors in the multifamily market.

However, the lengthy timeline and requirements of an agency approval impede the timing of a transaction, forcing a borrower to consider less-attractive permanent financing in the form of a conventional bank loan or commercial mortgage-backed securities (CMBS) loan. When this happens, having a strong bridge lender on speed dial can make a commercial mortgage broker look like a hero to a borrower.

In this article, we discuss situations when bridge-to-agency loans for multifamily property make sense as an alternative to agency loans.

The Solution: Bridge Loans

For a borrower whose long-term business plan relies on the various benefits of agency financing, a reasonably priced bridge loan for multifamily buildings that offers a flexible exit strategy is an excellent short-term alternative. The right bridge loan will provide time for the sponsor to execute a business plan and maximize proceeds on a refinance from bridge into their permanent Agency financing.

According to a December 2015 report from the Congressional Budget Office (CBO), about one-third of the more than 100 million renters in the U.S. live in a multifamily property. Multifamily assets such as apartments and condo buildings comprise more than 14 percent of all housing in the country and serve as homes for many low- and moderate-income families.

For this reason, the U.S. government has an interest in making sure there is sufficient liquidity for the acquisition, refinancing, and renovation of multifamily properties. Guarantees made by the federal government through a variety of agencies — including government agencies like FHA and indirectly through government-sponsored enterprises Fannie Mae and Freddie Mac — have bolstered the multifamily market.

Agency Lending

Agency-based loans provide an attractive non-recourse option for multifamily investors. With loan-to-value (LTV) ratios as high as 85 percent, fixed interest rates as low as 3 percent, and terms as long as 35 years, there are many reasons why agency loans are so popular. In addition, the introduction of the Freddie Mac small-balance loan program in 2014 expanded some of these benefits to loans as small as $1 million.

Agency Market Levels - March 2021

Many non-agency permanent loans place market restrictions on properties that agency loans do not. An FHA loan, for instance, comes with no population or geographic restrictions. This expands the inventory of apartment buildings that a borrower can consider purchasing. In addition, the age of an asset is not as important to an agency lender as it is to other permanent lenders, who have an appetite for newer or recently renovated properties.

A borrower might be attracted to an agency loan because it benefits their long-term plans. Agency loans for multifamily properties offer higher-leverage financing, for example. A different permanent loan might have a much lower LTV ratio than the borrower needs and coming up with extra cash for a down payment can be a deal breaker. Agency loans also are non-recourse, a huge benefit to investors who do not want or are unable to provide a personal guarantee. Rate-sensitive borrowers also like agency loans because the government guarantees the mortgage risk on the secondary market, allowing for more competitive pricing. Finally, after a loan has seasoned and improvements are made to increase a property’s value, an agency lender might offer a second-position loan, allowing the borrower to take cash out.

Get a quote on a bridge loan from Liberty SBF »

The Borrower’s Timeline

Every mortgage broker knows there are a lot of moving parts in a deal and one small detail can hold up closing. Agency loans are not perfect for every situation and, for all their benefits, they do come with a few downsides. 

Time is of the essence in almost every deal. Unfortunately, agency loans are not known for sprinting hare-like toward closing. If a borrower wants to take advantage of the 35-year fixed rate on an FHA loan, for example, approval can take 6 to 12 months. When a borrower has funds in an account for a Section 1031 like-kind exchange, they will need to use them to purchase a new investment property quickly. This puts a hard deadline on closing the transaction — 180 days from selling one property to acquiring another. Alternately, there might be a competitive bid situation where the seller has other options. In both cases, agency financing will probably not meet the needs of the borrower because agency loans take more time to underwrite and close.

The property itself might also pose a stumbling block. A problem might come up in the closing process, such as title, structural, or environmental issues, that delays the loan approval. In these cases, a borrower can capitalize on an income-producing property by closing with a bridge loan while these issues are worked out, which could take weeks or months to resolve.

Finally, a property might be desirable for the borrower but just isn’t performing to the underwriting standards of a specific agency. Fannie Mae and Freddie Mac require a property to be 90 percent occupied for at least 90 days to be eligible. Given enough time, a borrower might demonstrate the required occupancy needed to satisfy an agency’s requirements, and a bridge loan offers breathing room to stabilize the property.

Oftentimes, borrowers in these situations go with permanent loans that have less attractive terms than agency loans. In these scenarios, a bridge loan converted into permanent financing through an agency is often a better long-term economic decision for the borrower.

Bridge Loan Features

A bridge loan for multifamily properties can give the borrower the ability to accomplish everything they need. They can close under a tight timeline while securing agency financing to replace the bridge loan at a later date. The right lender can help a broker save the day. It’s important to look for a lender that has capital market experience, knows agency financing and can execute in a short time frame. While no short-term financing program is a universal fit for every borrower, there are certain situations that make a bridge-to-agency loan a good solution. Your lender should know which products are the right fit and offer a solution at a reasonable cost to the borrower.

Bridge Loan Features

Get a quote on a bridge loan from Liberty SBF »


Flexibility is key when choosing the right bridge loan. A borrower should be allowed to prepay at any time with no more than six months of yield maintenance on the loan. The bridge loan should also close very quickly, preferably in less than a month. The whole idea is to give the borrower control over the situation as quickly as possible, whether it’s by stabilizing a property or utilizing 1031 funds that have negative tax implications if not dispersed by a specific date. A bridge loan that takes too long to close doesn’t solve any of these problems.

Comparable Leverage

A bridge loan also must have comparable leverage to an agency’s permanent loan so the borrower doesn’t have to come up with too much additional out-of-pocket cash. For stabilized or close-to-stabilized properties, the bridge loan should have a single-digit interest rate. In the end, a borrower should expect some additional costs, but to help mitigate sticker shock, a commercial mortgage broker should look for origination fees from a bridge lender to be in the 1-2% range.

In Closing

For a broker with a client purchasing a multifamily property, having a good bridge lender in your back pocket can salvage a deal that looks like it might go off the rails. The broker becomes a hero and they can potentially earn an extra commission while still offering the borrower the best deal possible. If your client must close on a multifamily property but an agency loan is causing a roadblock, a bridge-to-agency loan scenario is a great alternative to less desirable permanent financing.


10 Articles About CRE From Liberty SBF

Liberty SBF has become a thought leader in commercial real estate finance with articles published online and in major industry media outlets. Below are 10 articles published by Liberty SBF or in influential publications with the company’s input.

1) Non-Bank Lending Is the Solution for Small Business CRE Loans

Strong demand for capital in the commercial real estate sector is expected to continue for the foreseeable future. Historically low interest rates, a robust economy, and strong employment numbers are boosting a surge in CRE demand across the country. People might assume that all commercial real estate lenders are alike, but there are many types of financial institutions that work with CRE borrowers.

What is a non-bank lender and how is it different?

2) Think Retail is Dead? Think Again!

Despite what you might be hearing in the news, in today’s strong economy, retail trade continues to grow. April 2019 saw a year-over-year 3.1 percent increase in US retail sales

Find out how business owners can thrive in the new retail ecosystem especially with an SBA 504 loan.

3) Green Office Properties & the SBA 504 Loan

When you acquire a green office property you can help protect the natural environment, have a healthier workplace, and take advantage of the special SBA 504 Green loan program, when the office property you are purchasing meets certain environmental standards.

Find out advantage of SBA 504 financing for office properties here.

Man in suit with graph showing loan interest rates

4) Loan Interest Rates for Dummies (and the Rest of Us)

We spend a lot of time talking about interest rates because they affect so much of our lives. On a personal level, they govern the cost of our mortgage, our credit card bill and our car payment. In business, they affect our ability to grow and expand, to invest in new equipment, and to purchase commercial real estate.

But how well do we really understand interest rates? Where do they come from? What do they mean, and how can we make smart financial decisions based on our expectations for future interest rates?

Click here to find out more about interest rates.

5) Characteristics of an Industrial Real Estate Hot Spot

Over the past few years there has been a revitalization of the industrial sector, driven primarily by e-commerce retailers looking for warehouse space that meets their specific needs.

On paper, that looks like decreased industrial vacancy and increased rents. What really makes an industrial hot spot in different regions?

Click here to see what makes an industrial hot spot.

6) The Interim Second – a Critical Element of Every SBA 504 Loan

If you’re familiar with SBA 504 loans, you’re likely at least familiar with the term “interim second.” But there’s also a good chance that you may not fully understand what an interim second is, and how critical it is to SBA 504 financing.

Click here to learn more about Interim Seconds for SBA 504 loans.

Flexible open office space

7) What a 25-Year Term on SBA 504 Loans Means for Business Owners

Last year, the SBA made the first major change to its 504 loan program in over 30 years: It added a 25-year term. Now, businesses owners applying for a SBA 504 loan can choose from a 10-, 20- or 25-year debenture. What’s different about a 25-Year SBA 504 loan?

Click here to find out.

8) Scale the Multifamily Mountain with a Bridge Loan

When your multifamily property deal needs to close before your agency loan is approved. When this happens, having a strong bridge lender on speed dial can make a commercial mortgage broker look like a hero to their client.

Find out more about bridge lending for multifamily here.

9) Spotlight on Self-Storage: What’s all the Buzz About?

This asset class may not exude the glamour of a shiny downtown office tower, but self-storage assets have for a long time been the unsung heroes of commercial real estate investments. People are talking more and more about self-storage.

Read why here.

10) Hotel Financing With the SBA 504 Loan Program

The US hotel industry saw another record year in 2018, reaching absolute values that were the highest ever benchmarked. A 10th consecutive year of growth is predicted for 2019, according to CBRE Hotels Americas Research. As experienced lenders, we are convinced that the best, most cost-effective solution is to finance your hotel is with an SBA 504 loan.

In this article, we will walk you through today’s peak hotel market, as well as recent changes that affect SBA 504 loans.

Get Your Deal Quoted!


Business Owners Can Thrive in the New Retail Ecosystem

Despite what you might be hearing in the news, in today’s strong economy, retail trade continues to grow. April 2019 saw a year-over-year 3.1 percent increase in US retail sales. Despite the convenience of ecommerce, in-store shopping remains dominant. Sixty-four percent of Americans today are shopping in-store vs. 36 percent shopping online.  Shopping in stores accounted for 85.7 percent of retail sales in 2018. Most consumers still enjoy and value the physical shopping experience, where they can see, hold, touch, and try on merchandise before buying.

Ecommerce famously has had a negative impact on stores and shopping malls, and many observers hold ecommerce chiefly responsible for the numerous store closures and downsizing of the past few years. The challenges ecommerce presents to real estate are complicated. However, we discern potential areas for growth in the retail CRE sector, especially for owner-users. Commercial real estate pundits who predict doom, gloom, and the eventual loss of retail assets’ value may be blinding themselves to today’s opportunities.

Mixed-use properties

Mixed-use properties are particularly well suited to these changing times. Retail owners have by now pruned their dead or dying properties and changed their focus to higher-growth retail and mixed-use projects (retaildive.com). The owner/user model, where the owner’s business occupies at least 51 percent of the net rentable square footage of a property, is eligible for advantageous SBA 504 loans. The commercial and residential combination is common for SBA-accepted properties, e.g., a retail business below and rental apartments above.

An SBA 504 loan we recently arranged for the acquisition of a mixed-use, three-story retail/residential building in Brooklyn, New York, is a good example. The buyer, Brooklyn Brokerage, is an independent Insurance agency that will occupy the ground-floor commercial unit and a second-floor apartment unit for the business, and lease a third-floor apartment unit for additional income from the property. this type of small storefront building with apartments above and retail below is a common sight in New York City. The commercial ground floor usually occupies less square footage than the residential portion above. Urban infill markets with walkable retail such as the property described above, offer generally stable opportunities, especially when they are well well-maintained, and storefronts are visible from the street.

“Total Commerce”

As retail evolves at a rapid pace, shopping today is an anytime, anywhere, 24/7 activity. The boundaries between brick-and-mortar stores and e-commerce are blurring for general merchandisers. No longer this-or-that, either/or, it is one, total commerce ecosystem, and smart retailers will keep up with the trend. “The message needs to be: This is how consumers are choosing to shop. We need to be there in whatever way they want us to be,” according to cnbc.com.

Many online retailers are now finding it profitable to open brick-and-mortar outposts that complement and facilitate their online sales and deliveries. As these sellers scale up, the move from “click to brick” is necessary for continued growth. Digital native brands will open approximately 850 physical stores over the next five years, according to a report by JLL on more than 100 top online retailers. Amazon’s acquisition of Whole Foods is part of this trend, as well as its physical retail sites Amazon Books, Amazon Go, AmazonFresh Pickup, Amazon Pop-Up stores, and Amazon Hubs for package pick-ups and drop-offs, with plans to open hundreds more. A recent study by ICSC indicated that when native online retailers open brick-and-mortar stores, they experience a 45 percent increase in online traffic in that market area.

Further timely investment opportunities are emerging from the repurposing of abandoned big box stores and retail malls to create spaces for ecommerce warehousing and fulfillment operations.

Service Retail

Retailers know that one key to differentiating their businesses and attracting new and loyal customers is to deliver superior customer service, beginning with the first-time potential buyers walk in to their stores. The key is to develop a relationship with the buyer that will translate into repeat business and word-of-mouth referrals. Service retail will never go out of style, but it is evolving in line with today’s market conditions. According to retaildive.com, store closures have peaked by now, and physical retailers are going all out to compete by reinvesting in their stores.

The retail-as-a-service concept has expanded to experience-driven retail that creates an attractive, even entertaining atmosphere that fosters a sense of social community. Retail Prophet CEO Doug Stephens has define the concept as “hosting brands in a space that is curating that space in a very particular way, employing great design, creating great online content,” as well as great staffing, merchandising and analytics. For example, the online furniture retailer Wayfair is opening a store with showrooms and displays that will include interior designers to help customers make choices (Bloomberg.com). Other owner-users are converting industrial-type properties, such as abandoned big box stores, into mixed-use office and ecommerce fulfillment centers.

Retail innovations

Retailers are experimenting with technology, location size and various customer services. In line with the function of stores meeting consumers’ desire to see, hold and touch a product before buying, the retail chain b8ta’s 15 stores, plus one in Macy’s in New York City, serve as presentation centers for consumer electronics and other innovative products. Some chain retailers are downsizing their stores, including Ikea and Nike. The Nike Live concept has localized products and an intimate feel, with an emphasis on mobile technology and tie-ins for NikePlus members.

Another great example: Nordstrom was losing traffic in its department stores due to the popularity of its online sales. It is expanding its service-hub Nordstrom Local concept that combines several of its most popular or highly demanded services under one roof to serve customers in their own local markets. The boutique stores have no inventory; customers can pick up online orders. “Local” isn’t a mini-Nordstrom store; according to forbes.com, it’s “a wholly new offering seeking to meet customers where they [a]re in a remarkable, intensely customer relevant way.”


Another great example: Nordstrom was losing traffic in its department stores due to the popularity of its online sales. It is expanding its service-hub Nordstrom Local concept that combines several of its most popular or highly demanded services under one roof to serve customers in their own local markets. The boutique stores have no inventory; customers can pick up online orders. “Local” isn’t a mini-Nordstrom store; according to forbes.com, it’s “a wholly new offering seeking to meet customers where they [a]re in a remarkable, intensely customer relevant way.”

Brick-and-mortar retail properties continue to evolve in many ways, and, we believe, will offer more and more options for investors. When it comes to financing mixed-use properties with retail components, the SBA 504 program has advantages that no other can equal, including 90 percent LTV (loan-to-value ratio) financing, a low fixed rate, and up to 25-year terms. We specialize in helping borrowers though the SBA 504 loan process to ensure success. When you work with an experienced SBA lender like Liberty SBF, you can be confident that we will anticipate any problems and help you overcome any potential obstacles.

Interest rates are low, and now is the time to lock in your fixed-rate SBA 504 loan. Contact Liberty SBF, and we can get the job done in 45 days or less.

Email info@i.libertysbf.com or call (213) 297-5747.

You can also connect with Liberty SBF on LinkedIn


Hotel Financing With the SBA 504 Loan Program

Non-Bank Lending Is the Solution for Small Business CRE Loans


The Interim Second – a Critical Element of Every SBA 504 Loan

Businessman holding a tablet with composited city skyline behind him

If you’re familiar with SBA 504 loans, you’re likely at least familiar with the term “interim second.” But there’s also a good chance that you may not fully understand what an interim second is, and how critical it is to SBA 504 financing.

Did you know, for example, that an interim second is required on virtually every SBA 504 loan? Or that it’s technically a completely separate loan from the typical 50%-commercial / 40%-CDC 504 loan mix?

Even if you’re an SBA 504 expert, there may be a few pieces of the interim second that are a bit murky.

Let’s dig in so that we can understand the importance of SBA 504 interim seconds and the opportunities they bring to brokers, CDCs, bankers and business owners.

The Structure of an SBA 504 Loan

A quick refresher on SBA 504 loans – every SBA 504 loan is made up of three parts:

  • A first loan, from a commercial lender like, which typically makes up 50% of the project value
  • A second loan from a Certified Development Company (CDC), which typically makes up 40% of the project value
  • A down payment provided by the borrower, typically 10% of the overall loan

Here’s what that would look like on a $10M SBA 504 loan:

Chart - Anatomy of a $10M SBA 504 Loan

The Role of the Interim Second

The interim second (sometimes also referred to as an “SBA 504 bridge loan”) covers the value of the SBA-backed second mortgage between the time that the commercial portion of the loan is funded and the time that the CDC portion of the loan is funded.

Why is that necessary? Because on every SBA 504 loan, there’s a minimum of 45 days between those two portions being funded.

So, imagine you’re a business using an SBA 504 loan for one of its most common purposes: purchasing a new building. You complete the loan application process, get approved and get ready to close on your real-estate transaction with – let’s imagine – a $10M purchase price.

Your commercial lender will provide $5M on closing, and your down payment will cover another $1M, but the remaining $4M from the CDC won’t show up for another 45–60 days (or even longer in some cases).

To close on your transaction, you’re going to need the entire $10M wired to the seller all at once.

So, the interim second provides a loan for the remaining $4M at the time of closing as a short-term loan, and is paid off a month or two later when the CDC funding comes through.

Why Are CDC Payments Delayed 45+ Days?

There are really two significant reasons why the CDC portion of a SBA 504 loan isn’t paid out immediately with the commercial portion of an SBA 504.

Higher Risk = More Stringent Requirements

The first reason is that the CDC portion of an SBA 504 loan is second lien debt, meaning that the CDC takes on more risk than the commercial lender.

In an SBA 504 loan, the commercial first mortgage takes the senior lien position, while the CDC portion takes the secondary position. If that loan were to default, after the sale of the underlying collateral, the commercial lender would be paid 100% on their loan balance before the CDC would be reimbursed with any remaining proceeds.

Because it’s taking on more risk, the SBA-backed CDC portion of the loan tends to have more stringent requirements for funding, one of which is the delay.

Loan Pooling & SBA Securities

The second reason for the delay is based on the way the SBA pools and sells off its loans into securities. Prior to 1984, the SBA would sell investors individual loans. So, if an SBA loan funded the purchase of a warehouse in Chicago, an institutional investor could buy that specific loan.

After 1984, the SBA moved to a system where it pools multiple loans into mortgage-backed securities, and then sells those pools to investors. So, instead of just selling the loan for the warehouse in Chicago to an institutional investor, the SBA might now bundle that Chicago warehouse with a medical office in Los Angeles, a hotel in Las Vegas, a nursing home in New Jersey and a range of other loans.

This loan pooling program provides a more diversified, accessible financial product to investors. It also takes time. The SBA wants a minimum of 45 days from funding the commercial portion of the loan so that it can pool the loan and have it ready to sell to institutional investors.

The SBA also has a set schedule of days on which it will fund loans. There’s one day every month, usually near the middle of the month, when the SBA funds the CDC portion of its 504 loans. The difference between a 45-day and 60-day wait for the funding of any given loan can simply be the relation between when the transaction closes and the next eligible SBA 504 funding date.

Extending an Interim Second With Construction

There are some factors that can extend the interim second even beyond the typical 45- to 60-day period. The most common of these is construction.

The SBA won’t fund the CDC portion of a loan until construction has been completed. This can be as complex as building an entire structure from scratch, or as simple as performing some minor remodeling before moving in.

In either case, the work has to be complete for the SBA to deliver funding. At Liberty, we typically provide interim second financing for terms of up to six months to allow for the completion of construction and improvement projects.

Sources of SBA 504 Interim Seconds

SBA interim seconds typically come from one of two places: the lender providing the commercial portion of the SBA 504 loan or a third-party commercial lender who specializes in interim seconds.

At Liberty SBF, we actually provide both services.

For the SBA 504 loans that we originate, we’ll typically include interim second financing as a matter of course. Even though the interim second is technically a separate loan, the documentation and due-diligence process is easily integrated, and allows us to provide a more seamless, easy and fast experience for our partners and customers.

We also provide interim seconds for SBA 504 loans originated by other lenders.

Why would another lender prefer that we handle the interim second?

Sometimes it’s a matter of institutional lending limits. A lender might have a policy that only allows them to loan $5M to a single borrower. If a lender is providing a $5M SBA 504 first commercial loan, that policy wouldn’t allow them to extend another $4M to that same borrower in the form of an interim second.

Other institutions may have a policy of not lending at a 90% LTV (loan-to-value)  ratio. So they would provide funding at 50% LTV, while allowing us to provide the remaining 40% as a short-term interim second.

Whether the interim second is provided by the originating lender or an independent lender, the goal should always be for a seamless, convenient process.

Key Characteristics of a Successful Interim Second Process


Whenever possible, planning for the interim second would begin the moment the SBA loan application begins. Many of the requirements for due diligence, applications and documentation are very similar, and early planning often helps the process be easier and more efficient.


We know that it’s not always possible to plan for an interim second as soon as the loan process begins. That’s why we’ve developed a process that lets us close SBA 504 interim seconds in as little as two weeks.


As a non-bank lender, we can offer a more flexible process that allows us to assess the individual characteristics of any individual loan and borrower. At times, we can finance interim seconds for projects that may not fit the cookie-cutter mold required by other institutions.

The Interim Second in the Real World

We’ve been talking about hypotheticals, but let’s look at a couple of real-world examples where Liberty SBF worked with other SBA 504 lenders to provide interim second financing that allowed a deal to go through.

$1.38M Interim Second for San Marino Office Building

A growing law firm in San Marino, California was looking to acquire new offices. They were approved for an SBA 504 loan, with their traditional bank providing the $2.5M first mortgage but preferring not to fund the full 90% LTV.

The tenant also needed to make some improvements to their new building before moving in, so even though their SBA funding authorization occurred on March 2nd of 2018, that funding wasn’t expected for another 120 days.

Liberty SBF was able to provide $1.38M in interim second financing to allow the transaction to proceed and the law firm to finish its improvements to receive funding from the CDC portion of their loan.

$5.38M Interim Second for a Green Building in San Marino

Another law firm in Orange County found office space in Newport Beach. They were approved for a total financing package of $14.8M, including a CDC portion of $5.38M.

In most cases, the CDC portion of an SBA 504 loan maxes-out at $5M. However, adding a “green” component to a project – such as energy efficiency, renewable energy generation, or green materials and designs – can bump that amount up to $5.5M.

In this case, the business owners added a 160-panel solar array to the roof of their new office building, a project that was estimated at three months. Liberty worked closely with the non-bank commercial lender providing the first lien, and we were able to provide the $5.38 interim second to allow for up to 180 days from the project’s approval to funding from the SBA for the CDC portion of the loan.

How Can We Help You?

Interim second financing is a critical part of the SBA 504 loan process. We’ve developed our interim second services to serve nearly everyone involved in the industry – from brokers and CDCs to business owners and even “competing” commercial loan providers. Those services let us provide the interim second when we’re the first lien lender, and even when we’re not.

No matter what your role in the SBA 504 loan process, we can help. All you have to do is let us know how we can help you.

Contact Liberty SBF today. Email info@i.libertysbf.com or call (213) 297-5747.

You can also connect with Liberty SBF on LinkedIn


Loan Interest Rates for Dummies (and the Rest of Us)

Protect Your Bottom Line – Refinancing to a Fixed-Rate CRE Loan