BSPRA is equal to 10% of all eligible costs, excluding land value (for new construction) or as-is value (for substantial rehabilitation projects), as a mortgageable cost. Note, however, that BSPRA is only a mortgageable cost used for underwriting purposes; BSPRA is not a source of cash for payments of any amounts due to the contractor or otherwise. BSPRA benefits a borrower with a Criterion 3 constrained loan because when the applicable loan to cost percentage is applied to the mortgageable replacement cost total it now includes the additional 10% BSPRA calculation, as opposed to a more typical contractor’s profit of 4.5-7% of the hard construction costs. Therefore, it reduces the cash equity requirement of the borrower to close the loan. When BSPRA is used, contractor’s profit is not a mortgage eligible expense and no profit can be paid to the contractor under the construction contract. Any amounts to be paid to the contractor must come from sources other than the mortgage loan and outside of the construction contract.

SPRA, or Sponsor’s Profit and Risk Allowance, can be used instead of BSPRA. SPRA may be included in replacement cost where no identity of interest exists between the general contractor and borrower, or where there is an identity of interest but the borrower and general contractor have agreed to include a general contractor profit instead of BSPRA as a mortgageable cost. SPRA is 10% of the total estimated cost of: architect’s fees, carrying and financing charges, legal, organizational, and audit expenses.

Both BSPRA and SPRA are allowed, but not required for new construction or substantial rehabilitation applications for profit-motivated borrowers.