September 27, 2022 By Max Freedman

Growing your business typically requires more working capital than you might have on hand. That’s especially true with business renovations, where changes that could earn you more money may cost you more money to obtain. These expenses can often be hard to cover with your revenue, which is where business renovation loans may come into play. Below, you’ll find additional information on various loan programs you may be able to use to renovate your space.

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What is a business renovation loan?

A business loan for renovation is a financing option you can generally use to cover the costs of modernizing or repairing an existing commercial property. Since renovation projects can be quite extensive and costly, small business owners may be able to receive hundreds of thousands – or even millions – of dollars for these types of loans.

6 business renovation loan options

Financial institutions typically offer a variety of business renovation loan options to help small businesses afford space upgrades. Below are six of the most common business renovation loans.

1. SBA 7(a) loans

The Small Business Administration (SBA) created the SBA 7(a) loan program, though the SBA doesn’t directly provide funds. Instead, it guarantees up to 85% of these loans so traditional lenders can offer them with far less risk. The result is generally a high-quality loan for borrowers and a relatively low-stress lending experience for lenders. In fact, SBA 7(a) loans are widely considered the best around for renovation financing and nearly all working capital expenses.

  • Loan amount ranges: $30,000 - $350,000
  • Interest rates: Typically low
  • Repayment period: Typically up to 10 years
  • Minimum qualification criteria:
  • Your company must meet the SBA’s definition of small business
  • You must have a personal and business credit score of at least 650
  • You must make a 10% down payment on the project renovation costs

2. Bank term loans

Bank term loans are often what many people think of when considering a loan. You typically apply for them directly through a bank, which will then fund the loan themselves. These loans’ terms are usually also quite borrower-friendly and will vary by bank, but they’re often your second-best option for renovation projects.

  • Loan amount ranges: $30,000 to $300,000
  • Interest rates: Varies
  • Repayment periods: Generally 2 to 5 years
  • Minimum qualification criteria:
    • Credit score of around 600
    • Annual revenue of $100,000
    • Company has existed for at least 1 year

3. SBA 504 loans

SBA 504 loans are another type of SBA loan you can use for business renovations. Their funding structure is fairly unique among loans. Your loan, which you’ll typically get through an SBA-backed bank, if eligible, will cover 50% of your project costs. A local certified development company will generally cover 40%, and you’ll generally cover 10% of your project costs out of pocket.

  • Loan amount: Up to $5 million, though may be up to $5.5 million for certain energy projects
  • Interest rates: Typically low
  • Repayment periods. Generally 10 to 20 years
  • Minimum qualification criteria
    • Your company must be a for-profit business based in the U.S.
    • Your company needs an average annual net income of no more than $5 million for the past 2 years.
    • Your company needs a net worth of at most $15 million.

4. Business lines of credit

A business line of credit is a loan that’s similar to a credit card. You’ll generally have access to a certain amount of money that you can withdraw from as needed for renovation financing or other business-related expenses. You don’t typically have to use the whole credit line, and you’ll only pay for the portion you do use. While credit lines generally don’t offer as much money as most traditional loans, they’re generally great for smaller expenses, like equipment repair and replacement.

  • Loan amount ranges: $2,000 to $1 million
  • Interest rates: May be high, though you generally only pay interest on the money you use
  • Repayment periods: Typically six months to four years
  • Minimum qualification criteria:
    • Personal credit score of around 550
    • Minimum 6 months in business
    • $4,000 or greater in monthly business income
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5. Equipment loans

Even if your business doesn’t need a complete renovation, repairing or replacing important equipment may help keep things running smoothly. You can use equipment loans for this purpose. These loans can feel more low-risk since you generally won’t need to use collateral to obtain them. Instead, the equipment itself is the collateral, though the potential of your equipment to be seized in case of default may introduce its own form of risk.

  • Loan amount: 80% to 100% of expected equipment costs
  • Interest rates: Low to mid-range
  • Repayment periods: Typically 3 to 10 years
  • Minimum qualification criteria: Equipment loan qualification criteria varies by lender. That said, equipment loans are typically easy to qualify for because the equipment itself is the collateral.

6. Invoice financing and factoring

If you need renovation money sooner than a typical loan application process would allow, invoice financing and factoring may be a fit for you. With invoice financing, a lender will generally advance you 80 to 90% of your company’s outstanding invoices. Once you collect on your clients’ outstanding invoices, your lender will typically collect a portion of that payment as their fee.

Invoice factoring is different from invoice financing, which isn’t a loan in the traditional sense. Instead, with factoring, you generally sell your invoices at a discount to a third party. This entity then takes over your collection process and typically keeps some of the money they collect.

  • Loan amount: 80 to 90% of your invoices’ total
  • Interest rates: Usually low
  • Repayment periods: You’ll typically repay your invoice financing or factoring loan once your clients repay you. The longer your clients take to repay you, the more expensive your loan.
  • Qualification criteria: Your personal and business financial histories generally barely play a part in qualifying. Financiers and factoring companies will focus almost exclusively on your invoices.

Benefits of renovating your business space

While you might balk at the expense of remodeling your property, it has the potential to benefit your company tremendously. Renovation may, among other things:

  • Help you accommodate your growth plans. The more demand increases for your services, the less your current layout will likely be able to handle it. Restaurants are a great example: The more the word spreads about your great food, the more space you’ll likely need to welcome guests. Restaurant loans for renovation can help you adjust to this success – and keep it going.
  • Attract customers to your space. Paint peels, floor stains, and equipment breaks can drive people away from your company. With a high-quality renovation, your business may be more appealing to customers.
  • Increase employee satisfaction. Replacing broken or outdated equipment may help your team do their job better, which may make for happier, more productive employees and a more efficient operation.

Find business renovation loans with SmartBiz

Business renovations may enhance your company’s success and accommodate an expanding clientele. Renovations, though, generally require money, and that requires finding a lender, which may prove to be a time-consuming process without expert help. Through SmartBiz®, you may be able to find SBA 7(a) loans, bank term loans, business credit lines, and other financing options for your renovations. Check now to see if you pre-qualify* for business renovation loans to help give your company the new look and feel it deserves.

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