Fit-out finance secured by property

A new site is one of the most expensive steps a small business takes, and the fit-out is usually the biggest single line. Joinery, services, kitchens, treatment rooms, shelving, signage, compliance work. Then the bond, the opening stock and a few months of wages before the site pays its way.

Banks and equipment financiers struggle with fit-outs. Most of the money goes into things bolted to a building you don’t own, built to suit your business alone. If you walked away, the lender couldn’t sell a custom bar or a dental surgery’s plumbing. So they decline, cap the amount, or ask for property anyway. If you own property, you can go straight to the security that works.

Why is a fit-out such poor security?

From a lender’s side, a fit-out has four problems:

• It’s attached to the landlord’s building. Fixtures generally become part of the premises.
• It’s purpose-built. A café fit-out suits a café. Its value to anyone else is limited.
• The lease may require its removal. Make-good clauses can require you to strip it out at the end.
• It’s hard to repossess. Removing a fit-out costs money and usually destroys most of it.

Loose equipment, such as ovens, chairs or a dental chair, can sometimes be financed on its own. The built work rarely can. Property equity covers both. If equipment is a big part of your budget, our page on equipment and machinery compares the options.

What does the lease say about the fit-out?

Read this before you price the job. In New South Wales, the Small Business Commissioner’s Retail Tenancy Guide sets out how retail lease fit-outs usually work:

• The tenant usually pays. The Guide says lessees will usually be responsible for the costs of installing fixtures and fittings.
• You may pay the landlord’s preparation costs too. Some or all of the lessor’s costs of preparing the premises for your fit-out can be passed on.
• Agree the cap in writing. The Guide says lessees must agree to the maximum cost of the lessor’s fit-out costs in writing before the lease begins, and that the disclosure statement must say who pays.
• Disclosure timing. The landlord’s disclosure statement must be given at least seven days before the lease starts, and the tenant’s part is due seven days after receiving it.
• Incentives. A lessor’s contribution to the fit-out is a common incentive, sometimes documented in a separate deed, which can make the true rent harder to see.
• Make good. The NSW Government describes make good as returning the property to the agreed condition when you move out. The Guide says it typically means an empty and neutral state.

Other states have their own retail lease laws and commissioners, and non-retail leases follow their terms. Your solicitor will check the lease before you commit to a builder.

How fit-out finance secured by property works

1. Lock in the lease and the cap on any landlord’s costs.
2. Get firm quotes, with a contingency, and confirm whether the landlord contributes.
3. Build the full budget: fit-out, landlord’s costs, bond or bank guarantee, opening stock, wages until breakeven.
4. Enquire with the property details, what’s owing on it, the budget and the exit.
5. Choose the security. A second mortgage behind your existing loan is common; read a second mortgage on your home for business if the home is the security. A caveat loan suits a smaller, faster job. A private first mortgage suits debt-free property or bigger builds.
6. Settle, then pay the builder as progress claims come in.
7. Open, trade, repay. From the site’s cash flow, the business as a whole, or a bank refinance once the site has a record.

Lease signed and the builder wants a start date? Check fit-out funding against your property with a 60-second enquiry.

What belongs in a realistic fit-out budget?

Most fit-out overruns come from items left off the first quote rather than from the builder’s work itself. Before you size a loan, make sure the budget includes:

• Approvals and certification. Council or private certifier fees for any change of use, plus fire, accessibility and health sign-offs where they apply.
• Services upgrades. Electrical capacity, grease traps, extraction, plumbing and air conditioning are frequent surprises in older buildings.
• The landlord’s works. Any preparation costs you agreed to pay under the lease, up to the written cap.
• Design and project management. Architect, interior designer or project manager fees.
• Signage, IT and security. Often quoted separately and easy to forget.
• Make good at the old site, if you’re relocating rather than adding a site.
• Contingency. Ask your builder or project manager what allowance they recommend for the unexpected; older buildings usually need more.
• Time. Rent may start before you trade. Count the weeks of rent, wages and loan interest between handover and opening day.

A budget that captures all of this is easier to fund once than a budget that needs topping up halfway through the build.

Fit-out funding options compared

Option	Security	Covers built work?	Speed	Fits
Landlord contribution	None (lease incentive)	Yes, partly	Set by the lease	Strong tenants in a negotiating position
Equipment finance or lease	The equipment	No, loose items only	Days	Ovens, chairs, medical equipment
Supplier or shopfitter terms	Usually none	Sometimes	Varies	Smaller jobs with an obliging fitter
Bank business loan	Property and business	Yes, with property	Weeks	Established businesses with strong financials
Property-secured private loan	Real estate	Yes	Same day to 48 hours possible	New sites, tight timelines, banks that won’t lend on fit-out

For the wider comparison, see secured vs unsecured business loans.

Who it suits

• Hospitality operators opening or refitting a venue. See hospitality.
• Medical, dental and allied health practices building treatment rooms. See medical and dental practices.
• Childcare operators fitting out a new centre to regulatory standards. See childcare centres.
• Retailers and franchisees opening a second store or refreshing an existing one.
• Businesses relocating to bigger premises. See business expansion funded by property.

When this isn’t the right move

• The landlord will fund most of it. A strong fit-out contribution may make borrowing unnecessary. Negotiate first.
• A franchisor or bank has a fit-out package. Some franchise systems arrange fit-out finance with partner lenders. Compare it honestly.
• The site is unproven and the property is your family home. A new venue can take longer to trade profitably than planned. If the only security is the home and the only exit is the new site’s success, think hard and talk to your accountant.
• A short lease. Spending heavily on a fit-out for a lease with little time left, and no option to renew, rarely pays back.
• No exit within the term. Fit-outs are long-life spending. If the plan is to repay over five years, a longer bank facility suits better once the site is trading.

What it costs (without the guesswork)

You won’t find a set price here, because each loan is priced on its security property, how much is borrowed against it, the term and the reliability of the exit, and we aim for the lowest figure those facts support. The components:

• Interest, prepaid or capitalised so the build doesn’t carry monthly repayments. The capitalised interest glossary entry explains how it accrues.
• An assessment fee, which varies and is printed on the Letter of Offer.
• Legal and registration costs for the mortgage or caveat.

There is no formal valuation required. A second mortgage or caveat costs more than a first mortgage, because the lender is second in line.

Tax points to raise with your accountant

• The ATO lists alterations and improvements to a leased building, including shop fit-outs and leasehold improvements, as capital works.
• The ATO says leasehold improvements can’t be claimed over their effective life or the lease term; they’re claimed at the applicable statutory capital works deduction.
• Loose assets may be treated differently. The ATO’s instant asset write-off page lists a limit of $20,000 per asset for businesses with aggregated turnover under $10 million, for assets first used or installed on or after 1 July 2023.
• Interest on money borrowed for a business purpose is generally deductible. See is business loan interest tax deductible.

Documents you’ll need

• Identification for borrowers and guarantors.
• The signed lease or agreement for lease, and the disclosure statement.
• Builder or shopfitter quotes, with the contingency shown.
• Any landlord contribution terms.
• The security property’s details and the most recent statement for any loan on it.
• A simple trading forecast for the new site, if you have one.

How fast

Once paperwork is in, funding is possible within 24 to 48 hours for up to $5m, and $20k to $250k secured on property is possible same day. The builder’s start date and the lease’s fit-out period are usually the deadlines that matter. Start the enquiry when you sign the agreement for lease.

Illustrative example: a second café in Sydney’s inner west

Illustrative example: The owner of a busy Sydney café signs a lease for a second site. The fit-out quote is $280,000, the landlord contributes $40,000 after completion, the bank guarantee needs $45,000 in cash cover, and opening stock and wages until breakeven are budgeted at $55,000. The owner’s home is worth about $1,900,000 with $800,000 owing. At an illustrative 65% band on total debt, the home supports about $1,235,000, leaving headroom of about $435,000.

New-site budget	Amount
Fit-out quote	$280,000
Contingency	$28,000
Bank guarantee cash cover	$45,000
Opening stock and wages buffer	$55,000
Principal	$408,000
Interest, capitalised over 12 months	depends on the deal
Assessment fee and legals	depends on the deal
Inside the security?	yes, under the $435,000 illustrative headroom, but close
Exit	$40,000 landlord contribution at completion, then a bank refinance at month 10 using both cafés’ trading figures

Because the loan sits close to the illustrative headroom, the owner trims the contingency by drawing $30,000 from the first café’s cash. The new site opens in four months. For New South Wales notes, see our Sydney private lending page.

Related situations

If you are moving rather than expanding, the bond on the new lease is often due before the old one is returned: see bank guarantees and lease bonds. If the landlord offers to sell you the building instead, read buying your business premises. Buying an existing business with a fit-out already in place? See buying a business with property security.

See if you qualify before the builder starts

A fit-out runs to the builder’s program and the landlord’s fit-out period, not to a bank’s timetable. There’s no credit check when you enquire, and the enquiry stays with one direct lender rather than going out to a list. A specialist reads it. Give us the real figures on the property, the debt already against it and your plan to repay, and you’ll get an answer that holds up.

Ask if your property can fund the fit-out, or read about secured business loans in general.