Fit Out Finance & What Not to Spend On

Fit Out Finance Covers the Fixtures, Not the Fit Out Itself

Fit out finance doesn't fund the construction or renovation work. It covers the equipment and fixtures you install once the space is ready. That includes office furniture, medical equipment, kitchen appliances, point-of-sale systems, and any movable assets that aren't permanently attached to the building. The physical renovation, electrical work, and structural changes fall under a different funding arrangement.

Consider a dental practice opening near the Richardson Park precinct in South Perth. The landlord has completed the base build, but the practice needs to install chairs, imaging equipment, sterilisation units, and reception furniture. Fit out finance might cover $120,000 worth of equipment across a chattel mortgage structure, with fixed monthly repayments over five years and a small balloon payment at the end. The practice can claim depreciation on the equipment and deduct the interest, which reduces the effective cost. The renovation itself was handled separately, either through the lease agreement or a construction loan if the business owned the property.

The distinction matters because lenders assess the collateral differently. Equipment holds value and can be recovered if the loan defaults. Plasterboard and paint do not. If you're funding a complete fit out, you'll need to separate the equipment component from the construction component before speaking to a finance broker.

What Equipment Qualifies and What Doesn't

Lenders will finance equipment that holds resale value and serves a clear business purpose. Office furniture, medical devices, commercial kitchen equipment, and technology like servers or point-of-sale systems all qualify. Custom joinery, built-in shelving, and anything that becomes part of the building structure does not.

In our experience, fit outs for hospitality businesses in South Perth often blur this line. A café near the Mends Street Ferry terminal might install a custom coffee machine, refrigeration units, and seating. The coffee machine and fridges qualify for equipment finance. The fixed timber seating built into the wall does not. If you're unsure whether an item qualifies, ask whether you could remove it and sell it separately. If the answer is no, it's part of the fit out, not the equipment.

Some lenders also exclude items with a purchase price below a certain threshold, typically around $5,000. Buying small office items like desks or chairs outright often makes more sense than including them in a finance agreement that adds interest over several years.

Chattel Mortgage vs Lease for Fit Out Equipment

A chattel mortgage lets you own the equipment from day one while securing the loan against the asset. You claim the full depreciation and deduct the interest, and at the end of the term, you pay a balloon payment and own the asset outright. This works well for equipment you plan to keep long-term, like medical devices or specialised machinery.

A finance lease means the lender owns the equipment during the lease term, and you make regular payments to use it. At the end of the lease, you can upgrade, return the equipment, or pay a residual to take ownership. This suits businesses with short upgrade cycles, like technology or hospitality equipment that becomes outdated quickly.

As an example, a physiotherapy clinic in South Perth might finance treatment tables and ultrasound equipment through a chattel mortgage because those assets have a long useful life and the business benefits from owning them. The same clinic might lease its computer systems and software on a three-year cycle because the technology changes quickly and the business wants to upgrade without selling old equipment.

The tax treatment differs between the two structures. A chattel mortgage lets you claim depreciation and interest. A finance lease lets you claim the full lease payment as a deduction, but the lender claims the depreciation because they own the asset. Your accountant should review the numbers before you commit to either structure.

The Balloon Payment Decision

Most fit out finance agreements include a balloon payment, which is a lump sum due at the end of the term. This reduces your monthly repayments but leaves you with a final payment that can be substantial. Balloon payments typically range from 10% to 40% of the loan amount, depending on the lender and the asset type.

A 30% balloon payment on a $100,000 fit out might reduce monthly repayments by several hundred dollars, which helps manage cashflow in the early years of a new business. At the end of the term, you owe $30,000. You can pay it outright, refinance it, or sell the equipment and use the proceeds to clear the balance.

The risk is that the equipment's resale value falls below the balloon amount. If you financed a $100,000 fit out with a $30,000 balloon and the equipment is only worth $20,000 at the end of the term, you're short $10,000 if you planned to sell and clear the loan. This happens most often with technology equipment or items that depreciate faster than expected. If you're considering a balloon payment, make sure the residual aligns with the equipment's expected value at the end of the term, not just the lowest possible monthly repayment.

Vendor Finance and Why It's Not Always the Right Choice

Vendor finance is an arrangement where the equipment supplier provides the funding directly, often at the point of sale. It's common in industries like hospitality, medical, and commercial vehicle sales. The application process is quick, and approval rates are high because the vendor has a vested interest in completing the sale.

The interest rate on vendor finance is often higher than what you'd access through a broker who can compare options across multiple lenders. In a scenario like this, a restaurant in South Perth might be offered vendor finance at 9% for kitchen equipment, while the same business could access a commercial equipment finance facility at 7% through a broker. Over a five-year term on a $50,000 loan, that 2% difference adds several thousand dollars in interest.

Vendor finance also locks you into one supplier's terms. If you're fitting out a medical clinic and need equipment from three different vendors, you'll end up with three separate finance agreements, each with different rates, terms, and payment dates. Consolidating the fit out through a single asset finance facility simplifies the process and often delivers lower rates.

Preserving Working Capital During a Fit Out

Funding a fit out with cash reserves might seem like the most straightforward option, but it leaves your business exposed if revenue is slower than expected or an unexpected cost arises. Fit out finance lets you preserve working capital and spread the cost over the life of the equipment.

A small accounting firm opening near Angelo Street in South Perth might have $80,000 in cash reserves and a $60,000 fit out to complete. Paying cash leaves $20,000 in the bank, which might not be enough to cover rent, wages, and operating costs during the first few months of trading. Financing the fit out over five years keeps the full $80,000 available for working capital and limits the monthly outlay to around $1,200, depending on the interest rate and structure.

This approach also improves the business's cash position when applying for other funding. If you need a business loan or line of credit in the first year, lenders will look at your available cash and existing commitments. A business with $80,000 in the bank and a $1,200 monthly equipment repayment is in a stronger position than one with $20,000 in the bank and no debt, particularly if the revenue forecast is still unproven.

Call one of our team or book an appointment at a time that works for you. We'll review your fit out requirements, separate what qualifies for equipment finance from what doesn't, and structure a facility that aligns with your cashflow and tax position.

Frequently Asked Questions