Everyone knows the common sales phrase, “consumers buy what they see.” This means that consumers are more likely to purchase what is visually appealing, be it from a small business with an appealing storefront, a clean and well-organized business space, a modern restaurant dining room, an attractive website, or even the way your products are displayed.

However, when time wears down your business’ storefront, or you want to change the inside of your establishment or website to reflect a new product or change to your brand, renovations can be expensive and severely cut into your cash flow. Fortunately, small business owners have several renovation financing options to choose from to renovate to give your business the makeover it needs. Financing can give you the funds that you need upfront without being a drag on your working capital.

Business Renovation Financing Options

Specific types of financing are best for specific renovations and situations. If you own the building your business is housed in and your roof is 25 years old and needs replacing, for example, that may require a different type of financing than, let’s say, purchasing new equipment. Here is a list of the different types of financing you can apply for to spruce up your business.

SBA CDC/504 loan

The SBA 504 loan is an ideal option for renovating your business’ physical space or buying new equipment. Specifically, the 504 loans are meant for upgrades of major fixed assets and long-term equipment that will promote business growth and job creation in the community. It is most often used by small businesses operating in underserved communities and can be obtained through a list of SBA-approved community development corporations (CDCs).

While the rates and requirements are usually lower than a loan from traditional and alternative lenders, the average borrowing amount is typically smaller – the average loan amount is slightly under $1 million, even though loan amounts can go up to $5 million. Additionally, your net revenue must be $5 million or less after federal income taxes for the two years before you submit an application. For more information, check out the SBA’s 504 loan website.

Equipment Financing Loan

An equipment financing loan is a specialized loan in which a financing company provides you with the funds to purchase a specific piece of equipment vital to your business that will be paid back with a fixed interest rate. This type of financing is offered by both traditional banks and alternative lenders. If you’re seeking to modernize your business with new, revenue-generating equipment, this could be an ideal option.

SBA 7(a) Loan

The SBA 7(a) loan is a term loan and because the loan is partially guaranteed by the SBA, it typically offers the best rates. The loan amount can be up to $5 million and can be used for a variety of reasons, including business renovations and purchasing new equipment. It is only offered through SBA-approved lenders, and the interest rate on the loan is typically pegged to the yield of the 10-year US Treasury bond, making it one of the cheapest borrowing options for small businesses in terms of cost of capital.

The 7(a) loan, however, is one of the most difficult loans to obtain, as the requirements for obtaining one are the toughest. Applicants must have high business and personal credit scores, a detailed business plan, and a profitable business, among several other requirements. If you are approved, the funding time could take weeks. 

A Business Line of Credit

A business line of credit is an extremely versatile financing tool that gives your business a revolving credit line that can be used for any business purpose, including renovating your business. Lines of credit are offered by both traditional and alternative lenders, and you will only be charged interest on the amount you borrow. The interest rate on a line of credit is typically lower than what you’d be charged for a business credit card, and it provides you with cash to make purchases.

To qualify for a line of credit, you typically need a good FICO score (650-675) as well as a solid business credit score (65 or higher). The repayment terms on a line of credit can be tricky, however. Many line of credit providers require that it be repaid in full on a monthly or annual basis, and depending on the providor, you may be charged balloon payments and other processing fees. It is important to work out the terms of a line of credit before you take one on.

Term Loan

A term loan, also known, simply, as a business loan, is a lump sum of cash that a bank or alternative lender will provide that will be paid back with interest over the course of months or years. This type of financing can provide distinct advantages if you are looking to spruce up your business by renovating your storefront, modernizing your dining room or revamping your office or store space. A term loan usually offers a cheaper interest rate compared to equipment financing or a line of credit, and the repayment terms are at fixed intervals.

Much like with the SBA 7(a) loan, however, this type of loan is usually slightly more difficult to obtain than a line of credit, 504 loan or equipment financing. A term loan typically requires at least 2 years in business and strong credit rating and cash flow statements. Traditional banks often require a strong business plan to get approved, while alternative lenders do not.

Working Capital Loan

Working capital loans are short-term loans that often must be paid back in under a year and can be obtained only by alternative lenders. This loan provides short-term funds that can be used for immediate renovations such as fixing a leaky roof or replacing old furniture or equipment in your office or store interior. This type of loan usually has looser requirements than a traditional term or 7(a) loan. However, it is also the most expensive type of loan, as interest rates on this type of loan can be as high as 25% because approvals are usually based on less strict requirements.  

Carefully Review Your Options

If your business is in desperate need of renovations, it’s best to carefully assess your needs and estimate the cost of whatever renovations you are seeking. Carefully choose which type of financing would be best for your business based on those needs, your creditworthiness and what you are willing to pay in terms of cost of capital. If you carefully choose, the financing you receive should propel your business into the future.