Financing Your Buildout

November 1, 2021

Business growth often requires strategic changes — your business is thriving and demand for your products and services has increased. Whether you’re hiring more employees or boosting your inventory, expanding your physical space takes careful planning to ensure you’re making the best decision for your business.

Expanding your space when you rent

If you’re a tenant, the first step is to consider the length of your lease. Are you planning to stay in the same location long-term or do you see yourself acquiring a new space when your lease is up? Determining how long you intend to stay will help you decide if an expansion is worth it. If you do want to move forward with increasing your current space, it’s important to talk to your landlord about who is responsible for funding the expansion and what options (if any) you have for leaseholder improvements. Most times, tenants finance expansions themselves, but in some cases, a landlord may be willing to foot the bill. This may depend on the type of business you have and your landlord’s appetite for adding to a lease.

The market can also affect your lease improvement options. During a buyer’s market, landlords often need to provide more value to help keep tenants happy. But in a seller’s market, especially in high-demand, urban areas, that might not be advantageous to the landlord if new tenants are easy to find. Speak to your landlord and your bank to determine what’s best for your situation.

What are your financing options?

If you’ve decided you need to remodel or expand your work environment, it’s important to consider your options for financing this project. You’ll need to take a close look at your cash flow and determine what you can finance through your bank.

Depending on the terms of your lease and your business type, a Leasehold Improvement Loan might be what you need. This type of loan helps your business improve its leased space. At Sandy Spring Bank, financing is available for up to 100 percent of a tenant’s related build-out expenses, with a term of up to 10 years.

If your property is owner-occupied, a Real Estate Term Loan can help you finance a build-out or expansion. These loans can help you finance the acquisition of a building or refinance or make improvements to your existing property. 

An SBA Loan is also another great option if your business doesn’t qualify for a more traditional loan. These loans offer flexible underwriting guidelines and terms, including smaller down payments and longer repayment terms. Sandy Spring Bank can help you decide if your business qualifies for an SBA loan and which program option might be right for you.

How should you pay for new furniture and equipment?

When it comes to capital expenditures, such as new computers, office furniture, machinery and other types of equipment, you should closely look at the pros and cons of leasing versus buying:

  • Leasing
    Leasing equipment requires less upfront capital and provides more flexibility. Leases are often easier to obtain than commercial loans, helping free up cash for other business needs. It can also make it easier to upgrade obsolete equipment in the future. However, leasing frequently costs more in the long-run and doesn’t help you build equity in your equipment.
  • Buying
    Ownership is an advantage of buying equipment, along with possible tax deductions (consult your tax advisor). With that said, the initial high cost of buying equipment means this isn’t an option for everyone. In addition, buying equipment (especially high-tech equipment) means you run the risk of possibly being stuck with something technologically obsolete several years down the road.

When deciding whether to lease or buy, talk to your banker to help you better understand what’s best for your business — now and in the future.

Client advocacy

At Sandy Spring Bank, our commercial lending team recently worked with a large manufacturer that wanted to expand its business. The company didn’t own the warehouse space it occupied, but it was looking to make significant improvements, including the purchase of a large printing press that would cost several million dollars. To accommodate the printing press, the company also needed to expand its physical space and purchase a variety of other assembly line pieces to work with the equipment. By partnering with Sandy Spring Bank, this manufacturer was able to finance nearly 100 percent of their expansion and equipment costs with a leasehold improvement loan.

As a business owner, one of the most important things you can do to plan for an office expansion or build-out is to talk to your banker. The right bank will work together with you to understand your goals, investigate your options and help guide you through the expansion process. Some projects may need a significant (1 year+) lead time, so a brief conversation now can help guide your long-term planning. Contact Sandy Spring Bank today to discuss the numerous lending resources we have to help your business grow and succeed.

1This is not an offer of credit or a commitment to lend. Credit qualification is subject to Bank underwriting and approval. Additional fees, terms and conditions may apply.

This material is provided solely for educational purposes and is not intended to constitute tax, legal or accounting advice, or a recommendation for any particular transaction.