Unlocking the Door to Your Dream Business: Creative Ways to Fund Tenant Improvements

Are you a retail or restaurant owner looking for tenant improvement financing options for your tenant improvements? Look no further.

What is Tenant Improvement Financing?

First, let’s understand what tenant improvement financing is. When leasing a commercial space, new or existing tenants may need to make improvements to the space to meet their specific needs. Tenant improvement financing is a vital aspect of any business that leases a commercial space and is a way to finance upgrades, improvements or renovations to a leased commercial space.  Tenant improvement financing provides funding for these improvements. This financing can come from a variety of sources, such as friends and families, banks, credit unions, private lenders or even crowdfunding. In this article, we’ll discuss both traditional and creative ways to finance retail, restaurant and franchised locations through tenant improvement financing.

What Would I Utilize Tenant Improvement Financing for?

Tenant improvement financing is a type of funding or financing that is designed to cater to the needs of tenants who require customized spaces to meet their business needs. The improvements may include the installation of new walls, new flooring, painting, electrical work, new or lease kitchen equipment, plumbing or even a complete overhaul of the space or build out of a completely new and blank white space.

Lets Talk About Traditional Tenant Improvement Financing Options First!

A very standard and typical form of Tenant Improvement Financing is to obtain a loan from the Small Business Administration (SBA) loan or a SBA Construction Loan. The SBA provides loans to small businesses for a variety of purposes including tenant improvements. These loans are backed by the federal government which can make them more accessible to small businesses with limited resources. However, the application process can be lengthy and require extensive documentation.

Another traditional method of tenant improvement financing is equipment financing. This type of financing allows you to purchase or lease kitchen equipment you need for your business or new restaurant. This can include kitchen equipment, point-of-sale systems, bar equipment, coffee maker machines etc. Equipment financing typically involves a loan or lease agreement with a chosen lender. Lease kitchen equipment can be a good option to lower out of pocket costs and start up costs to open your business cheaper. The lender will provide you with the necessary funds to purchase or lease the equipment you need, and you will make regular payments to the lender over a set period of time. This can be a good option for tenants who need specific equipment for their business but don’t have the necessary funds to purchase it outright. These are also especially good for restaurant tenant improvement financing as the amount of kitchen equipment can be a substantial cost for the opening of a new location.

There is always a traditional Construction Loan if you need to make significant improvements to your leased space, a construction loan or construction financing may be the best option. Construction loans and construction financing are designed to provide funding for large-scale renovation or construction projects. To obtain a construction loan and construction financing, work with a lender who specializes in this type of construction financing. The lender will evaluate your business and credit history as well as the scope of your project to determine if you are eligible for the construction financing loan. If you are approved you will receive the necessary funds to complete your renovation or construction project. These are can also be called bridge loans where as they are usually a short term loan option, say 12-24 months, to complete the construction so you can generate revenue or more revenue and pay the loan back over time.

If the Equipment Loan, SBA loan options or the Construction are not a good fit for you, you will need to look into obtaining tenant improvement financing through traditional business financing channels. This can include lines of credit, term loans, and other types of financing that are designed to help businesses meet their financial needs, expand, or offer additional working capital. To obtain business financing, you will need to work with a lender who offers these types of loans. The lender will evaluate your business and credit history to determine if you are eligible for the loan. If you are approved you should be free to use the funds for tenant improvements as well as other business expenses.

Now for Some More Out of the Box and Creative Tenant Improvement Financing Options

One creative way for tenant improvement financing is through a leasehold loan. This type of loan is secured by the tenant’s leasehold interest in the property. The loan is based on the estimated value of the improvements and repayment is typically spread out over the term of the lease. This can be a good option for tenants who may not have collateral or a strong credit history. Another creative way is the possibility for friends and family funding or loans as a form of Tenant improvement financing. If you have a strong support network of friends and family, consider reaching out to them for loans. This can be a less formal way to secure financing, and it can be a win-win situation for both parties. You get the funding you need, and your friends and family can invest in your success.

Crowdfunding is new way we have seen for tenants to finance their improvements. Crowdfunding is a way of raising funds through a large number of individuals typically via the internet. Tenants can create a crowdfunding campaign and promote it through social media, email or other channels. This method can be particularly effective for tenants with loyal customers or a strong online following and definitely not a traditional route but welcome to the new ways to do things!

Revenue-based financing has been a trend of late as well. This type of tenant improvement financing is becoming increasingly popular for startups and small businesses. With revenue-based financing a lender provides a loan based on a percentage of your expected revenue. This means that you will pay back the loan over time as a percentage of your revenue. This can be a good option if you have a solid business plan and projections for your restaurant’s revenue. We have seen loans like this originate from Point of Sale companies and the like.

As you can see there are several ways to both traditionally obtain tenant improvement financing and several creative new ways to obtain tenant improvement financing. There are a plethora of online lending platforms that typically offer more flexible lending terms and faster approval times than traditional banks or lenders. However, be sure to do your research and read reviews before choosing an online lender.

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