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1 June 2021 | by Tim Frankland
Having an alternative to paying in full and upfront could transform how you think about your plans, your budgets and what you can achieve. This guide is intended for those considering a finance option as the overwhelming majority of new clients introduced to us have no experience of using finance to deliver interior fit out projects.
The guide is only intended as a first step though. We have helped thousands of clients finance similar projects to yours but our approach is firmly bespoke to each one so enjoy the guide and get in touch when you are ready for us to help with your plans.
The two primary reasons for choosing to finance depend very much on the shape and type of organisation you are.
Profitable, private companies often stand to unlock significant tax savings compared to using capital. Although capital allowances (and for certain assets enhanced capital allowances) can be claimed when using capital, providing some tax relief, we can tailor a facility that is not only 100% tax deductible but also covers the full project costs including labour, fees, delivery and other intangibles.
Whether you are a private or public sector organisation, budgets can often take precedent over your aspirations. Scaling back your plans, delivering a piecemeal solution over time as budgets become available or even cancelling projects totally are all realistic propositions when relying on capital budgets. Financing takes the shackles off your vision – significantly reducing the demand on annual budgets and spreading the impact over the years of the agreement.
The benefits don’t end there though.
Here are some other positive outcomes that financing can offer you.
Low, Fixed Costs
Costs are fixed from inception for all the agreements we facilitate. Irrespective of any fluctuation in interest rates, your costs will not change.
Unlike using capital, where the VAT is paid in full upfront, we can provide facilities ensuring that the VAT is spread throughout the duration of the agreement. Of benefit to all, this can be extremely helpful for entities unable to reclaim VAT.
Irrespective of the size of your organisation, capital is best deployed where it can work hardest for you and all your stakeholders, fuelling growth and delivering return. Locking valuable capital in ultimately depreciating assets is not an efficient use of your reserves.
Spread the costs of your project over time, matching them to your return on investment rather than paying in full, upfront.
Reduce reliance on your primary funder with over 50 specialist funders we provide you with access to.
We are able to fund 100% of the project costs including labour and other intangibles maximising your benefits.
Here are 4 key things for you to consider, when contemplating finance as an option for your project:
1. Facility Type
You have opportunity, subject to underwriting, to choose from a range of asset finance facilities. Although we will happily talk you through these in detail and provide advice and support where necessary, here is a quick summary:
Finance Lease – Undoubtedly the facility type of choice for most projects as it typically offers a 100% tax deductible solution. At the end of the agreement you will have the option to retain the assets indefinitely thereafter for a one-off fee, return the assets to the funder or continue renting should you prefer. Over 95% of clients choose the first option especially for fit out agreements.
Hire Purchase – HP may not offer any of the tax advantages of a finance lease, in fact tax treatment is very similar to using capital, but does provide automatic ownership at the end subject to paying an option to purchase (OPT) fee. Working with your accountants, we can ensure that you maximise your capital allowances (and ECAs) whilst utilising any available Annual Investment Allowance. When coupled to a finance lease, you can achieve a highly tax efficient solution.
Commercial Loan – Although a less popular option for fit out projects, a commercial loan is best considered for entirely service-based costs (i.e. no assets involved) where the lack of assets rules out other products.
The most typical term for fit out and furniture projects is five years as it spreads costs over the useful life of the assets and keeps payments as low as possible. Alternatively, you can elect to finance your project over any term from 1-5 years to suit you, including part years if you wish to.
3. Payment Frequency
Although typically clients prefer to pay monthly, you also have the option to pay quarterly and, for public sector organisations, there is the option to pay annually too.
4. Supplier Payments
Although normal practice is for supplier payments under a finance agreement to be paid at the point the work is complete, for larger projects this is not practical and usually payment terms include interim valuations or stage payments. We will ensure that your finance facility is structured to match your agreed schedule and that you retain sign off authority on each draw down. Even better, we manage the whole process for you, freeing you up to concentrate on running your business in the meantime.
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