Commercial Renovation Loan & Commercial Rehab Loans
Both the 504 and 7a programs are commercial mortgage loans that allow you to finance renovations or improvements to an existing business property. The programs can be used for the purchase (or refinance ) and construction of improvements to an existing building or property in one transaction.
Retrofit for Commercial Property
The SBA’s programs are usefeul if you want to purchase a building that is currently not right for your business and you want to remodel, expand or convert it to make it right for your business and you want to do it with the least amount out of pocket.
Some 7a lenders allow for 100% loan to cost financing and almost all SBA lenders allow up to 90% loan to cost.
In fact, the SBA renovation loan programs are all about leverage when it comes to a building renovation since you can finance all of the renovation costs as well as most – if not all – closing costs and soft costs including appraisal, attorneys fees, engineering reports, title insurance, etc. This affords you much higher leverage than conventional commercial loans.
The 504 is limited to 90% loan to cost transactions and the 7a allows over 100% loan to cost for ground up construction, “refinance and remodel” or a “purchase and renovation.”
Finance Other Business Debt
The 7a also allows you to consolidate business debt, buy equipment, finance moving costs, purchase inventory and finance working capital as long as the cash flow – or in some cases, the projected cash flow – of the business is strong enough (post-closing). Also, if more than 50% of the loan proceeds are used to finance the purchase, refinance or rehab of real estate the entire amount can be financed over 25 years which can make the difference between qualifying or being turned down for the loan.
Additionally, some lenders will add in an interest only period on the front end of the loan and may even finance the payments during construction to help reduce out of pocket costs.
Green Commercial Renovation Loans
A commercial renovation is also a good time to take advantage of the 504 program’s green energy benefits as well.
If you are able to reduce the energy costs for the newly renovated property by as little as 10% you may qualify for a larger loan or additional SBA-guaranteed financing. This makes the 504 ideal for manufacturing and industrial facilities, hotels, motels and other businesses that want to realize the financial benefits of “going green” while having less of an impact on the environment.
Please see the following pages for more info about the 504:
Tax Incentives
Another major benefit to the SBA Green Program are the tax incentives of going green since most states and the Federal Government offer tax incentives for incorporating the use of renewable or alternative energy in a commercial building.
It seems logical that commercial property owners will continue to see the value in converting buildings to be more energy efficient and the 504 Green program could be the right program for small businesses who need to modernize, remodel or construct a building.
The green energy benefits of the SBA 504 currently allow a healthy, growing business to finance up to 90% of the cost of a purchase and renovation at low rates with a long term amortization of 25 years or more.
Please contact us at 1-800-414-5285 for more info re: commercial renovation loans.