Workspace Design & Build Funding
Are you budgeting for an upcoming office fit out project? Perhaps you need to refurbish your office, but are not sure about the available budget. Whatever your situation, you want to know about the best way to finance a workspace design & build project.
At Zentura, we've been fitting out and refurbishing offices since 2008. Our clients sometimes ask us “What is the best way to finance my office fit out?”. While our answers will vary depending on their unique situation, the main options are purchase, loan, lease finance, or rental. It will depend on your circumstances and future plans which is best for you.
In this article, we’ll explain each of the 4 options in turn, and then give you a few tips on how to make the right decision for your company. By the end, you'll know what available options there are to fund your project, and you'll be able to choose which is best for you.
Office Fit Out Funding
Self-Funding
Self-funded is the most common way to finance an office fit out. It involves using your company's own savings or cash reserves to pay for the project in its entirety. No third parties are involved, which makes it very straightforward.
The key advantage of self-funding your project is that there are no interest fees. It also gives you more control and flexibility with the project, as you don’t have to secure funding approval for every change. However, such an investment could tie up cash that is needed for daily business operations. This is especially problematic if your company is growing rapidly, or you don’t have large cash reserves.
Lease Finance
Lease financing allows you to rent the equipment and assets required for your office fit out, such as furniture, fixtures, and fittings. Once the design is finalised, your lease provider “purchases” the fit out, and you have use of the asset during the lease period.
The key advantage of using lease finance for your office fit out is that the upfront investment is much lower. There is usually no upfront cost or collateral required, merely the monthly payments. However, over time, the costs will exceed the outright cost to purchase your project, and you will have limited control for any alterations required.
Bank Loan
A bank loan is another option to fund your design & build project. It involves borrowing money from a bank and then paying it back over time, with interest. This funding model provides immediate access to large funds.
Using a Laon to finance your proejct means you reduce the upfront cost of your project, freeing up cash for other areas of the business. However, the interest payments will increase the overall cost of your project significantly. It may also require a strong credit rating and even collateral assets.
Rental
Rental is becoming more popular for office fit outs, especially for office furniture. Rental differs from leasing because following an initial fixed term (usually 6-12 months), the rent moves to a rolling contract.
Rental gives you more flexibility than any of the other finance options. It not only improves your cash flow but enables you to try different types of furniture in your office. However, there will typically be fewer choices of products and finishes available than for purchase. Rental will also be more expensive over time. To explore rental further, check out Fluidspace Flex.
Which is Best for Me?
Now that you know about the 4 most common options to fund your office fit out, your next question will be "Which should I choose?". Unfortunately, we can’t answer that question, because it depends on your company’s financial situation and workspace strategy. However, there are several crucial things to consider when choosing your office fit out financing model. Here, we'll go through each key consideration in turn.
Overall Cost
The first consideration is the overall cost. While the various types of deferred finance have many benefits, they almost always increase the cost of your office fit out in the long term. That is not to say you should always use internal finance, but you should consider your overall cost vs cash flow.
Cash Flow
Cash flow is just as important as upfront cost, if not more so. If you are growing fast, you may not have sufficient internal funds to afford the office fit out you need, so you need an external source of finance. While it may appear more expensive on paper, it may be better for your company in the long run if it enables you to grow faster.
Flexibility
The importance of flexibility is often overlooked by companies. However, if you work in a turbulent industry, it may be risky to use a long-term inflexible source of finance. While long-term lease finance may be the cheapest option, it may be very expensive if you have to move office before the end of the term and pay out the contract.
Tax Liability
While not as immediately obvious, tax liability can have a big impact on your overall office fit out costs. Many types of loans can be offset against company profits, reducing your tax. However, there are various tax relief schemes available to encourage investment, such as the annual investment allowance (AIA). Tax can make up to a 20% difference in what you pay for your project, so it’s worth examining in detail.
Quality
The final crucial aspect to consider when choosing your fit out finance model is its impact on the quality of your office. While it’s easy to forget when you're trying to minimise the cost, the purpose of an office fit out is to make your company and people perform better. If you reduce the brief to enable financing, you could limit the productivity of your people, losing out in the long run. Your ultimate goal should be return on investment, not reduction on investment.
Financing Your Office Fit Out
No two companies are the same. As a result, the fit out and financing requirements are always different, so there is no simple answer to the question “Which is the best source of office fit out finance?”. Rather, you should ask yourself, “Which is the best way to finance my office fit out”.
Here we’ve gone over the 4 most common types of office fit out finance: purchase, loan, lease, and rental. We’ve also covered the advantages and disadvantages of each, as well as some key factors to help you make the best decision for you.
It’s important to remember this article doesn’t account for your specific circumstances. Always consult with a qualified professional before making any decision about how to fund your fit out project.
To keep learning about office fit out costs, get your own Office Fit Out Cost Guide. Inside, you'll get benchmark costs per sq/ft, what affects office fit out costs, how to choose your specification, why some fit out companies are more expensive than others, and how to define your fit out needs. Download your office fit out costs guide here.
For more help with office fit out costs and finance, read How Much Does an Office Fit Out Cost in 2024?, What is the ROI of an Office Fit Out? and 3 Steps to Reduce Tax in Office Fit Out.
