5 Ways to Secure a Commercial Remodeling Loan
A commercial remodeling loan or a business renovation loan can be the best option for entrepreneurs who feel that their business is outgrowing their current physical space. These loans are offered to help growing businesses meet their increasing demands of space as well as attract more potential customers by giving a face-lift to their office or industrial unit. Below is a quick look at the available options for commercial remodeling loans.
SBA 504 Loans
Business owners planning to renovate their commercial space can apply for an SBA 504 loan if they have a good credit score of above 650 and own the real estate property. The business funding can be used to modernize, remodel, or make additions to the building space as required.
Usually, an SBA 504 loan comes in three parts – 50% of the loan is offered by a lending institution like a bank, 40% of the amount is funded by an SBA-approved Certified Development Company, and the rest 10% is taken as a down payment by the borrower. SBA 504 loans generally come with a small 5% interest rate, and they can have a term of 10 to 20 years. What’s more, borrowers can also include soft costs of commercial remodeling, such as the fees of the general contractor, into the loan amount.
Traditional bank loans are the next best option to SBA 504 loans. Business owners having a good credit score and a significant amount of equity in their business can apply for the loan and get it approved for competitive rates. Usually, the borrower would also be required to make a down payment of 20% to 30% to secure a traditional bank loan for commercial remodeling.
An equity loan or line of credit by a bank works quite similar to home equity loans and personal lines of credit. However, the difference here is that the loan would tap into the equity that the borrower has in the business. Entrepreneurs can also apply for secured lines of credit for commercial remodeling. Yet the terms and conditions might differ in this case depending upon the lending party.
SBA 7(a) Loans
An SBA 7(a) loan would be the most rewarding option for businesses that do not qualify for traditional bank loans. This is especially the case when a business owner is planning to renovate an office or industrial unit that is leased. SBA 7(a) loans are usually considered as general purpose working capital loans, but the funds can be used for renovation and remodeling of the business space as well.
Although most of the lending institutions hesitate to offer a commercial remodeling loan for a leased property, they would be more comfortable to approve the funding when it is guaranteed by the SBA. However, the borrower should have a good credit score and the ability to put at least a 10% down payment in order to qualify for the loan. Note that the more the down payment, the higher are the chances of getting the loan approved. The rates are more reasonable here, and the term can be up to 5 to 7 years.
An asset-based loan would work best for business owners who have a low credit score, and cannot qualify for an SBA-approved business funding for commercial remodeling. However, the borrower would still have to be the owner of the business property to qualify for the loan, as these are secured by commercial real estate. Besides, it also requires a larger down payment to qualify for asset-based or hard money loans.
Asset-based financing is generally more expensive than traditional bank loans and SBA loans, but they can have reasonable interest rates. Besides, the term to repay the loan amount can also be very flexible, but it would depend upon the lending party and their terms and conditions. An asset-based loan can be great for business owners who have an old facility and want to renovate it into a modern industrial unit.
Online loans and business lines of credit are the easiest to qualify for, but they can be very much expensive depending upon the lending institution. The lender usually does not put much emphasis on the credit score of the borrower here. Besides, there is no need for making a down payment to secure the loan either. However, lenders might require the borrower to agree to offer a general lien on their business assets to get the loan approved.
This business funding option can be the best thing for business owners who have a bad credit score as well as for new entrepreneurs who do not have much experience in managing a business. The funds are released very quickly here and it can be used for virtually any business need. The only thing to take note of here is to manage the scheduled payments sensibly, so that the business assets put as collateral are not seized because of default.