As we have explained in previous posts, 504 loans were designed to purchase land, facilities, or long-term machinery. But can you use a 504 SBA loan for renovations? Keep reading to discover the answer.
Can you Use a SBA 504 Commercial Loan for Renovations?
The short answer is yes, you can use a 504 loan for renovations to your existing facilities. However, there are a few things you need to keep in mind. Let’s take a closer look.
504 loans are a type of loan guaranteed by the Small Business Administration geared toward helping business owners purchase major fixed assets such as land, facilities, and equipment.
According to the SBA itself, you can also use a 504 loan for the improvement or modernization of existing facilities, land, parking lots, utilities, and even landscaping.
Remember that in order to qualify for a 504 loan, you must meet some basic requirements, such as operating as a for-profit company in the U.S, have a tangible net worth of less than $15 million, and having an average net income of less than $5 million after federal income taxes for the two years preceding your application.
It’s worth noting that when you apply for a 504 loan with the purpose of carrying out improvements to existing facilities, you may be required to provide additional documentation about the project.
The Things a 504 Loan CANNOT Be Used For
Just for the record, there are some things you are NOT allowed do with a 504 loan, for example:
- Use if for working capital or inventory
- Consolidating, refinancing, or repaying debt
- Speculation or investment in rental real estate
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