Commercial Remodeling Loans
We offer plenty of financing options for commercial remodeling.
Overview of Commercial Remodeling Loans
Is your business outgrowing its current space? Or do you want to attract more customers by sprucing up your business location? Commercial remodeling loans can help you renovate and make additions to existing business space. We have a variety of financing options for business owners who are planning remodels, both small and large-scale.
Free Guide To
Small Business Financing
How Commercial Remodeling Loans Work
We can help business owners who are planning commercial remodeling to obtain an SBA loan, conventional bank loan or line of credit, hard money loan, or online loan. The choice depends on a number of factors, including the following:
Personal credit score (check your score for free here)
Ability to make a down payment and how much
How much you need to borrow and how quickly you need the money
Whether you own or lease the property you’re seeking to renovate
The cost of the loan will be affected by these same factors. All else being equal, the longer you can wait to get a loan, the higher your personal credit score, and the more money you have to put down, the cheaper your financing will be.
Here’s a quick comparison of the different loan options for commercial remodeling:
SBA 504 loan | Conventional bank loan or line of credit | Hard money loan | SBA 7(a) loan | Online loan or line of credit |
|
|---|---|---|---|---|---|
Required personal credit | 680+ | 680+ | 600+ | 680+ | 600+ |
Down payment | 10 % | 20-30 % | 30-35 % | 10-30 % | None |
Collateral needed? | Yes (the business real estate serves as collateral) | Yes (real estate, inventory, receivables, etc.) | Yes (the business real estate serves as collateral) | Yes (real estate, inventory, receivables, etc.) | No |
Speed | 1-3 months | 1-3 months | 1-2 weeks | Less than 1 month | As fast as 1 business day |
Interest rates | 4-5 % | 4-5 % | 10-13 % | 6-7 % | 20-80 % |
Lease or own | Own | Either | Own | Either | Either |
SBA 504 loans
Borrowers with good credit and owner-occupied real estate should first consider a Small Business Administration (SBA) 504 loan, which can be used to modernize, make additions to, or otherwise remodel a business location.
A 504 loan comes in three parts:
A bank or direct lender lends 50 % of the loan
An SBA-approved Certified Development Company (CDC) lends 40 %
The borrower puts up a 10 % down payment.
At under 5 %, the interest rates can’t be beat. You can spread out the loan payments over 10-20 years and roll soft costs of renovation (e.g. general contractor fees) into the loan.
Conventional bank financing
If you don’t qualify for a 504 loan, conventional bank financing can also help you complete a commercial remodel. Business owners with good credit, a significant amount of equity in their business, and a 20-30 % down payment may be able to get an equity loan or line of credit at competitive rates. These are similar to home equity loans and lines of credit, but they tap into the equity you have in your business.
Alternatively, if you want to renovate leased property, secured lines of credit are available to help you get the job done. At FitBiz Loans, we offer a unique platform where hundreds of bank lenders will compete to offer you the best rates on a commercial remodeling loan or line of credit. Learn more today!
SBA 7(a) loan
If you are leasing the property under renovation, an SBA 7(a) loan may also be a good bet. Sometimes, banks hesitate to provide conventional financing for leasehold improvements, but they are more comfortable providing SBA 7(a) loans because of the government guarantee. SBA 7(a) loans are general purpose working capital loans that can be used for renovation as well as other business purposes. At a minimum, you’ll need a great credit score and 10 % down payment to qualify for an SBA 7(a) loan. Having more money to put down will increase your chances of getting approved.
Hard money loans
Business owners with lower credit scores or those who simply need money quickly can opt for a hard money loan. Like 504 loans, these are only available to owner-occupied businesses because the loans are secured by the commercial real estate. However, hard money loans typically place much less emphasis on credit score and more so on the post-renovation value of the business. So if you’re planning to take a distressed property and revamp it into, say, a hotel with great income-generating potential, a hard money loan may work well for you. Hard money loans are costlier than bank and SBA loans, but they still have pretty reasonable rates.
Online loans and lines of credit
Online loans and lines of credit are the costliest form of financing, but they are also the fastest option and the best option for bad credit borrowers. You can get money in as little as 1 business day. Even better, you don’t have to provide a down payment or put down specific collateral (though a general lien will be placed on your business assets, giving lenders the right to repossess those assets if you default). A lot of entrepreneurs choose to use online loans to remodel their businesses because of the speed and convenience they offer.
Will I Qualify for a Commercial Remodeling Loan?
Qualification requirements vary pretty widely based on the type of renovation loan you get. As with other business loans, personal credit is a factor in renovation loans. In order to qualify for an SBA loan or bank financing, you need a strong personal credit score, ideally above 650. Hard money loans and online loans are available for lower credit borrowers.
Try to come up with sufficient down payment and collateral to make yourself a more attractive loan applicant. At least 10 % down payment will put you in a good position to qualify for an SBA or bank loan. Hard money loans require a larger down payment. If you can’t afford a down payment, consider an online loan, which provides 100 % financing.
As far as collateral goes, the commercial real estate can serve as collateral, but if you have no equity in the real estate, it’s not very useful as collateral. In that case, you’ll have to search for something else, such as inventory or accounts receivable, to serve as collateral.
When you’re planning a renovation, particularly a large-scale one, you’ll need a bunch of documents before your loan can be approved (the exception to this is online loans, which don’t require much paperwork). These include, but are not necessarily limited to the following: an itemized budget from your general contractor, blueprints and specs for the renovation, landlord consent if you lease, draw schedule, materials list, and building permits (if applicable). In addition, you’ll need the usual documents for getting any type of business loan, such as business and personal tax returns and business bank statements.
Cost of a Commercial Remodeling Loan
When doing a commercial remodel, soft costs and the costs of lost business are just as important as the cost of financing. Soft costs are any costs aside from material and labor costs, such as general contractor fees, building permit fees, material delivery fees, etc. These can be rolled into SBA 7(a) and 504 loans but typically not into other types of loans. When doing a renovation, you should also weigh lost profits (i.e. if you are forced to halt or limit business during the remodel) against the eventual gains made possible by the remodel.
When it comes to financing, all else being equal, the longer you can wait to get a renovation loan, the higher your personal credit score, and the more money you have to put down, the cheaper your financing will be.
SBA 504 loans, bank loans and lines of credit, and SBA 7(a) loans typically have annual interest rates under 7 %. Hard money lenders have rates in the low double digits. Online loans are in the 20-80 % range, though borrowers with good credit can get better rates than that.
The Details:
Maximum Loan Amount
Varies
Loan Term
1 month - 20 years
Interest Rates
Starts at 4 %
Speed
As fast as 1 business day.
Down Payment
Typically requires 10-30 % down payment
Collateral
Yes (online loans will place a lien on business assets)
Personal Guarantee?
Yes
Have a question?
Pros
Commercial remodeling can increase your long-term business profits.
Many different financing options are available to fund business renovation, including several low-rate options.
Soft costs can be rolled into SBA loans.
Cons
You may have to shut down or limit business while the renovation is underway, which cuts into profits in the short-term.
Most types of loans require a down payment and collateral.
Can require a lot of paperwork.
How to Apply
Answer Simple Questions
Browse Your Loan Options
Get Funded in Record Time
Additional Resources
Commercial Real Estate Loans: How to Get a Loan for Income-Producing Property
Why A REAL SBA 504/CDC Loan Is Your Best Option When Buying Commercial Real Estate
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