In an uncertain economy, construction projects may slow down or be put on hold as businesses strive to make the right decisions. Nicki Matthews, Director at Plus Finance, explains how to unlock these projects without negatively impacting cash flow.
Over the past 20 years, we have observed a slow but steady increase in businesses using asset finance to fund fit-outs or refurbishment projects. However, financing a fit-out has not yet become as common as financing other business assets, such as IT and equipment.
Since COVID-19, there has been a noticeable surge in interest in financing options from businesses that would have almost certainly have used cash for such projects. The pandemic has taught us that we cannot know what is around the corner so the future is uncertain, tying up large cash reserves on a depreciating project does not make sense. Keeping cash in the business is a prudent choice.
Funding a project
When funding a project, clients generally have two options: using cash or securing a bank facility. Unfortunately, both these options can be stumbling blocks to a project getting off the ground as cash may be limited, while obtaining a bank facility can be time-consuming, inflexible, and come with restrictive conditions.
There is, however, a third option: leasing. This approach allows clients to fund all aspects of a fit-out project, including flooring, ceilings, partitions, M&E (mechanical and electrical systems), kitchens, bathrooms, and furniture.
The alternative solution
Leasing has long been used to finance other business assets, such as cars, equipment, and software, but is often overlooked for fit-out projects. However, it offers several benefits, including:
- Tax efficiency: For profitable businesses, leasing is the most tax-efficient method of funding a fit-out. Lease repayments are 100% allowable against taxable profit, unlike other funding methods.
- Fixed rate: Clients are insulated from any fluctuations in interest rates. They can budget for a fixed monthly cost for the fit-out, in addition to the monthly rent for the building.
- Fixed term: Most clients opt to spread the cost over a five-year term, but shorter and more flexible lease terms, such as three years, are also available.
As lease tenures shorten, we can expect 3-year terms to become more common over the next few years.
Sustainability and Reuse
One major motivation for financing a project is the focus on sustainability and the reuse of products. For example, some financing options include the ability to return furniture at the end of the term, alleviating the responsibility of disposal.
We are also in discussions to offer the option to incorporate the costs of dilapidations and maximise product reuse at the end of the term. Allowing clients to think about what happens at the end of the term, at the beginning of the process.
Arranging a finance package
For over 23 years, Plus Finance has specialised in arranging finance packages for businesses undertaking fit-outs or refurbishment projects. We work with a panel of funding sources to ensure we match the right funder with the client at the best rate.
Our clients range from start-up gyms to large corporations, including major LLPs and Barristers’ Chambers. While every client and project is unique, the benefits of spreading the cost of a fit-out remain consistent: it keeps cash in the business and maximises tax savings.
Despite these advantages, many clients still do not consider financing options when planning a move or refurbishment. They often rely on the fit-out contractor or consultant to inform them of these options. If you don’t mention it, they might not hear about it from anyone else! By working with clients to present all available financing options, you provide a comprehensive service that sets you apart from others.
In conclusion
If you’re not already familiar with how leasing works and would like to offer it to your corporate clients, the process is very straightforward. Most projects taking a matter of days to approve. Plus Finance will work in partnership with you to communicate the different options to your customers so they can make an informed decision.
The lease option costs nothing to offer and maybe the thing that unlocks a project. It’s a win-win situation for you and your client.
To find out more
Email: nicki@plusfinance.co.uk; Mobile: 07812 151231, Office: 01494 783773
