WHAT ARE TENANT IMPROVEMENTS
Making a Commercial Space Work for Your Business
Tenant improvements (TI) are modifications made to a commercial space to meet the specific needs of a business tenant or owner-occupant. These range from basic cosmetic updates to full-scale interior construction.
For business owners purchasing a building through an SBA 504 or conventional CRE loan, TI costs can often be rolled into the mortgage — eliminating the need for a separate construction loan or out-of-pocket payment.
For tenants leasing space, TI allowances are negotiated as part of the lease. When the landlord's allowance falls short, tenant improvement financing bridges the gap.
COMMON TI PROJECTS
💻 Office buildout Walls, wiring, HVAC
🍽 Restaurant kitchen Hood, plumbing, grease trap
🏥 Medical fit-out Exam rooms, X-ray, ADA
🛍 Retail storefront Flooring, fixtures, signage
🏭 Warehouse conversion Loading docks, mezzanine
WHO PAYS
Three Ways Tenant Improvements Get Funded
The funding structure depends on whether you own the building, lease it, or are purchasing it.
Landlord TI Allowance
Landlord provides a per-square-foot allowance ($10–$60/sf) as part of the lease. Tenant covers costs above the allowance. Common in office and retail leases.
Tenant leasing spaceRoll Into CRE Mortgage
When buying a building, TI costs can be included in the SBA 504 or conventional loan. One loan, one payment, one closing — often the lowest-cost route when you are buying anyway.
Best for owner-occupantsStandalone TI Loan
A separate commercial loan or line of credit specifically for buildout costs. Used when the landlord's allowance isn't enough or when the property is already financed.
Any situationIF YOU LEASE
Tenant-Side TI: SBA 7(a), Allowances Paid Late, and TI Built Into Rent
SBA 7(a) for leasehold improvements. A tenant can use SBA 7(a) to pay for buildout in leased space. Because the improvements belong to the building, lenders generally match the loan term to the lease term, including renewal options you control, and ask for the landlord’s consent and an assignment of the lease. A short remaining lease means a short loan and a higher payment — negotiate the lease and the loan together.
When the allowance arrives after the work. Many leases pay the TI allowance only when the buildout is finished and the tenant has moved in. Contractors want to be paid as they go, so tenants often need a short-term loan or line of credit to fund the work, repaid when the landlord releases the allowance.
Example: TI built into the rent. Instead of borrowing, a tenant can ask the landlord to fund more TI and repay it through the rent. Assumptions for illustration only: $200,000 of extra TI on 5,000 square feet, amortized over a 10-year lease at 8%, computed with the loan payment formula of our commercial mortgage calculator. (Our TI allowance calculator shows the same $200,000 spread over the lease with no interest: $1,667 a month.)
| Amount | |
|---|---|
| Extra TI funded by the landlord | $200,000 |
| Monthly repayment through rent (8%, 10 years) | $2,427 |
| Rent increase per square foot per year | $5.82 |
This keeps cash in the business, but you repay it for the whole lease even if you leave early, and the landlord sets the rate. Compare it with a 7(a) loan or line of credit before you sign.
Typical ranges, updated September 2026. Your terms depend on the property, the borrower and the lender.
FINANCING OPTIONS
How to Finance Tenant Improvements
Four financing structures cover most TI scenarios. The best fit depends on whether you own or lease, and the scale of the buildout.
SBA 504 (with TI)
Best for owner-occupants buying + building outTI costs included in the total project cost. One loan covers purchase + renovation. Requires 51%+ occupancy.
SBA 7(a)
Flexible — real estate + TI + working capitalCan combine real estate purchase, TI, equipment, and working capital in one loan. Variable or fixed rate. More flexible than 504.
CRE Cash-Out Refi
Use existing equity for buildoutIf you already own the property, pull equity to fund TI. Works for both owner-occupied and investment properties.
Commercial Line of Credit
Draw as needed during constructionBest for phased buildouts. Draw funds as construction progresses. Higher rate but maximum flexibility. Works for tenants who don't own the building.
Typical ranges, updated September 2026. Your terms depend on the property, the borrower and the lender.
TYPICAL COSTS
TI Cost Ranges by Space Type
Costs vary dramatically by property type, local market, and scope of work. These ranges are industry benchmarks.
THE PROCESS
How TI Financing Works
Scope Your Buildout
Work with your contractor or architect to define the scope of work and get construction bids. A detailed cost breakdown helps lenders evaluate and approve your project faster.
Submit to BestLoanUSA
Share your property details, buildout scope, cost estimates, and business financials. If you're buying the building, include the purchase contract. No hard credit pull at this stage.
Advisor Review
We recommend a financing structure: roll into SBA 504, use SBA 7(a) for combined needs, pull equity via cash-out, or set up a standalone credit line for phased construction.
Lender Matching
We match your project to lenders experienced in construction draws, TI escrows, and phased disbursements. You receive competing term sheets.
Approval & Draw Schedule
Lender approves the project and sets up a draw schedule tied to construction milestones. Funds are released as work is completed and inspected.
Build & Occupy
Construction proceeds with draws. Once complete, the loan converts to permanent financing (if applicable). You occupy your newly built-out space.
Free tools
Run the numbers
The same metrics a lender checks — free, instant, no signup. Each result links straight into an application.
- TI Allowance Calculator Calculate tenant improvement budgets and total build-out costs. Understand how TI allowances affect your lease economics and landlord investment.
- Rent Per Square Foot Calculator Convert between total rent and per-square-foot rates. Compare lease rates across properties and calculate total annual occupancy cost for commercial spaces.
FAQ
Frequently Asked Questions
Can I include tenant improvement costs in my SBA loan?
Yes. Both SBA 504 and SBA 7(a) allow you to include TI costs in the total project financing when you're purchasing the building. Tenants can use SBA 7(a) for leasehold improvements too, if the lease (with renewal options) runs at least as long as the loan and the landlord signs the lender's documents. Buying and building out together means one loan, one closing, and one monthly payment covering both the property and the buildout.
Can a tenant get a loan for improvements to leased space?
Yes. SBA 7(a), bank term loans and lines of credit all fund leasehold improvements. Lenders generally keep the loan term within the lease term, including renewal options, and ask for the landlord’s consent and a lease assignment. Alternatively, the landlord can fund more TI and add it to the rent — about $5.82 per square foot per year for $200,000 over a 10-year lease at 8% on 5,000 square feet.
How much TI allowance should I negotiate in my lease?
TI allowances vary by market, property class, and lease term. Class A office space in major metros may offer $40–$80/sf. Retail and industrial spaces typically offer $10–$30/sf. Longer lease terms (7–10 years) generally command higher allowances since the landlord amortizes the cost over more years.
What's the difference between a TI allowance and a TI loan?
A TI allowance is money the landlord provides as part of your lease — it's not a loan, and you don't repay it directly (it's built into your rent economics). A TI loan is separate financing you take out to cover buildout costs that exceed the allowance or when you own the building and need capital for improvements.
Can I finance TI on a property I already own?
Yes. If you already own the building, a CRE cash-out refinance lets you pull equity from the property to fund improvements. Alternatively, a commercial line of credit gives you flexible draws during construction. Both work for owner-occupied and investment properties.
How are funds disbursed for TI construction?
Most lenders use a draw schedule tied to construction milestones. As each phase is completed (demolition, framing, mechanical, finish), an inspector verifies the work and the lender releases the next draw. This protects both the borrower and lender during construction.
What documentation do I need?
Typical docs include: detailed construction bid or contractor estimate, scope of work with plans/drawings, 2 years of business tax returns, current P&L, bank statements, lease agreement (if tenant), and purchase contract (if buying). For SBA loans, additional SBA-specific forms are required.
Related on BestLoanUSA
Related financing
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- Restaurant A restaurant property loan finances the building a restaurant operates from — buying it, building out the space or refinancing. Owner-operators who occupy the property can use SBA 504 or 7(a) with as little as 10% down; investors buying a leased restaurant use bank or DSCR loans. Tenant improvementsRestaurants
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Guides & articles
All articles →- SBA 7(a) vs. SBA 504: Which SBA Loan Do You Actually Need? Both are SBA loans — but they work completely differently and are right for different situations. Here's the side-by-side that tells you which one fits your need. SBA 7(a)SBA 504
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Glossary
All terms →More calculators
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