Construction 101: New Construction vs. Renovations

For some businesses, simply purchasing a commercial building and just moving in works alright. Others, however, may have specific requirements for the spaces they occupy. Maybe there’s custom equipment, or a certain layout that gives a competitive advantage. When business owners want to customize their commercial facilities, there are two basic options: building something new (ground-up construction) or renovate an existing property. There are pros and cons to both, and we’re good at both because every SBA 504 project we work on is different. Here’s Shannon to explain a bit:

There are many factors that lead a business owner to choose construction, and then whether to build new or renovate. Sometimes we’re involved in that decision-making process and help our clients find the best solution. Other times our clients come to us with the project already mapped out and we arrange the financing (along with a CDC and a third-party lender most times as well).

Choosing ground-up construction, of course, gives small business owners the most freedom to create the type of building and space that they want and need. Then again, some of our clients find the perfect location for their businesses, but the existing facility needs to be improved. Renovating those properties makes the most sense for them. And sometimes the market dictates the type of construction project. There may not be any adequate existing facilities to improve, or there may not be space to build something new in a given area.

One thing to keep in mind is that you can use an SBA 504 loan to build more space than you need. We’ve talked about this before — a small business owner has to occupy 51% of the property, but the unused portion can be leased out to generate passive income for the business. Later, once the company has grown (thanks, in part, to the rental income perhaps), it can expand and utilize the rest of the building.

There are lots of moving parts in SBA 504 construction projects, and we’re going to tackle more issues in future blog posts and videos. If you have specific questions/concerns about anything, let us know. Email us at 504experts@mercantilecc.com or leave a comment below.

Thanks for reading, watching, and sharing this information. From all of us here at Mercantile Capital Corporation, Happy Thanksgiving!

– Your 504 Experts