Tenant Improvement Allowance Financing
Tenant improvement (TI) allowances — the money spent to build out a space for a specific tenant — are a common feature of commercial leases. Understanding how TI is funded and financed affects both the lease terms and any associated borrowing.
Landlord-Funded TI
The landlord pays an agreed amount toward the buildout, typically expressed as dollars per square foot. The cost is built into the rent over the lease term. From the tenant's perspective, this is the simplest path but ties the value of the buildout to staying in that space.
Tenant-Funded TI
The tenant pays for the buildout, sometimes in exchange for reduced rent or free-rent concessions. This typically requires financing — either through the tenant's own resources, an equipment-style buildout loan, or an SBA 7(a) loan covering leasehold improvements.
SBA Coverage of Leasehold Improvements
SBA 7(a) loans can finance leasehold improvements when the lease has sufficient remaining term to support the loan amortization. Lenders typically require lease terms of 10+ years (including options) for significant leasehold financing.
The Hybrid Structure
Some leases include a landlord TI allowance plus a tenant contribution. The tenant's portion can be financed separately. Negotiating the right split affects both ongoing rent and the tenant's borrowing requirements.
Educational content only — not advice. KQT Advisors, LLC is a commercial loan broker; we are not a lender, attorney, accountant, financial advisor, or fiduciary. We do not originate loans or make lending decisions. The information in this article is provided strictly for general informational and educational purposes and reflects our understanding at the time of writing. It is not — and must not be construed as — financial, tax, legal, accounting, investment, or any other professional advice, and creates no advisor-client relationship. Loan programs, rates, terms, eligibility requirements, fees, and approval criteria are set by individual lenders, the SBA, and other parties and are subject to change at any time without notice. Examples are illustrative only and not guarantees of outcome. Nothing here is a commitment to lend, an offer of credit, or a representation that any specific structure will be available to or appropriate for any borrower. Always consult your own qualified financial, tax, and legal advisors before acting on any information in this article. To the maximum extent permitted by law, KQT Advisors, LLC and its principals, employees, agents, and affiliates disclaim all liability for any direct, indirect, consequential, or incidental loss or damage arising out of any use of, reliance on, or inability to use the information in this article.