Opening a new location or refurbishing an existing business can involve far more than buying a few pieces of equipment.
There may be flooring, counters, electrical work, plumbing, signage, technology, furniture, commercial equipment, labour and dozens of supplier invoices before the doors are ready to open.
That creates a finance problem that isn’t always solved by traditional asset finance alone.
A $40,000 machine is relatively easy to identify.
A $200,000 fit-out made up of 20 different invoices is a very different transaction.
A fit-out can quickly become a cash flow problem
Consider a café opening another location.
The owner may need a coffee machine, refrigeration, counters, seating, flooring, electrical work, plumbing and signage.
A gym could need exercise equipment, flooring, mirrors, reception furniture, access systems and building works.
A medical or allied health practice may require treatment equipment, technology, cabinetry and modifications to the premises.
Even profitable businesses can find themselves putting large amounts of cash into the project before the new location produces any revenue.
That can leave the business short of working capital just as it is trying to open.
Fit-out finance is not necessarily the same as equipment finance
This distinction is important.
Traditional equipment finance is generally suited to identifiable business assets.
A fit-out may contain those assets, but it can also contain costs that don’t have the same standalone value.
Labour is an obvious example.
So are some installation costs and other expenses involved in actually completing the premises.
Depending on the lender and finance product, there may be business funding options that can accommodate a broader range of fit-out costs than standard secured asset finance.
Some specialist facilities may also allow multiple invoices to be funded under one overall limit.
These features are lender specific. Not every lender will fund soft costs, and the amount and type of costs that can be included will vary.
If you’re pricing a new site or major refurbishment, speak with Thrive Broking before committing all of the business’s available cash to the project. We can look at the business finance and equipment finance options available for the actual mix of costs involved.
What happens while the business isn’t trading?
This is another part of fit-out finance that deserves more attention.
A business may be paying rent, wages and existing commitments while the premises being renovated produces little or no income.
If an existing location closes for refurbishment, the effect can be even more immediate.
Some specialist finance facilities available in the market may provide repayment structures designed around a fit-out period, including temporary repayment deferment in certain circumstances.
That is not standard across all lenders and should never be assumed.
But it highlights an important question that should be asked before arranging finance:
When will this project actually start producing revenue?
The cheapest looking facility may not necessarily be the most suitable structure if substantial repayments begin while the business is still under construction.
Don’t use every dollar of cash just because you can
A common temptation is to pay for the first part of a fit-out from cash and worry about finance later.
The problem often appears halfway through.
The business has already paid deposits.
Trades have started.
Equipment has been ordered.
Then another $70,000 or $100,000 is required to finish the project.
At that point the finance becomes urgent, and the business may also have less cash sitting in its accounts than it did at the start.
Planning the funding before work begins gives the broker a much clearer picture.
What Thrive Broking will want to understand
For a fit-out finance enquiry, useful information includes:
the total expected project cost
whether the business is opening a new location or refurbishing an existing one
the expected opening or reopening date
equipment being purchased
estimated labour and installation costs
supplier quotes and invoices
whether the landlord is contributing towards the fit-out
how much cash the business intends to contribute
how much working capital should remain after completion
existing business debts and commitments
expected revenue once the new site is operating
whether the business will continue trading elsewhere during construction
It is much easier to structure a finance request when we can see the complete project rather than receiving one invoice at a time with no idea what is still to come.
The goal isn’t simply to pay for the fit-out
The bigger objective is to get the business through the fit-out and still have enough cash to operate afterwards.
There is little benefit in completing a beautiful new location if there is no working capital left to pay staff, suppliers and other operating expenses during the first few months.
That is why the funding structure matters.
Depending on the circumstances, the answer could involve equipment finance, a business loan, a working capital facility or a combination of finance types.
Thrive Broking can look at the entire project and the cash flow surrounding it before determining which lending options may be appropriate.
If you’re opening another site, relocating or undertaking a major business fit-out, tell us what you’re planning before the invoices start piling up.