How to Get A 504 Commercial Loan for Renovations

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Have you recently purchased a building that is in a great location for your business but it needs a lot of work to make it just right for your company? Have you seen a building that would be perfect for your needs but you can’t afford to purchase it? If you answered yes to either of those questions and you are going to be an owner occupier then a commercial renovation loan, also known as a 504, might be just what you need.

loan approved stampWhat is a 504 Loan?

It’s a commercial renovation loan created by the SBA (Small Business Administration) to make business property loans more easily obtainable to small business owners. These loans aim to help improve the economic state of local communities

The 504 is also known as a Real Estate Advantage Loan (REAL). This option of financing has been made attractive for small business owners as it features low down payment combined with fixed interest rates that are low and long term.

What Can I Use it For?

The 504 commercial renovation loan is a 90% loan to finance the purchase of a building and to renovate it.

You can take out a 504 to purchase land and then build a new construction. If you need heavy machinery to accomplish this then the 504 would cover that.

You can also use it to renovate an existing property. It would cover renovation costs for improving the facade of the building and/or improve landscaping. Getting general repairs and improvements done can help you to get your business up and running.

The 504 also covers ‘soft costs’ such as appraisal, attorneys fees, engineering reports, title searches and title insurance.

Am I Eligible and How long Does it Take to be Approved?

Considering the many advantages of a 504, most businesses worth under $15 million can apply for one. The SBA recognises that to a small business, time is money and they will get back to you with a decision in ten days.

Commercial Equity Loans

You could also consider one of these, although they are harder to get than a 504. This is because these types of loans can be for very large sums of money so you would need to have an extremely good credit score. You would also have to pass a Profit Test. This involves proving that once the renovations are completed, the building will be worth more than the construction costs.

There are less fees and relatively low interest rates which can help you to create liquidity. Commercial Equity Loans are lines of credit, so you would only pay interest on the sum that you actually use.

Going Green can Save you Money

If you can lower the energy costs on your renovated property by only 10%, you could get a larger 504 loan. This is because the SBA want to encourage businesses to have a lower impact on the environment. This makes the 504 an attractive source of financing for hotels, motels and industrial and manufacturing buildings.

There are also tax incentives for going green.


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