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The best ways to finance an office fit-out

To help get your office fit-out off the ground, we’ve shared some helpful financial information on the various ways to finance your office-fit out.

Despite some common misconceptions, your company doesn’t need to have huge cash reserves to finance your next office fit-out project. Before you considering postponing transforming your office space, due to tight budgets or short-term cashflow issues, there may be a more flexible solution to help you pay for your upgrade to your office space.

Generally, companies will pick one of three options to pay for the improvements.

There are three most common options to finance an office fit-out. These include:

●      Paying from capital funds

●      Loaning from the bank

●      Leasing the fit out

Paying from capital funds

Today companies of all sizes are favouring more flexible ways that allows the spreading out of repayments, rather than paying it in one big sum.

While financing the office fit-out from capital funds means that all assets belong to the company from the outset, an annual investment allowance (AIA) can be claimed each financial year (the amount was temporarily increased to £1million in 2021) and most importantly, there are no ongoing payments to budget for.

However, using your cash reserves can leave your cash flow vulnerable by typing up capital in assets that tend to depreciate quickly. It can also limit your budget, which then limits the scope or quality of the fit-out and the annual investment allowance does not allow you to offset payments against taxable profit.

Loaning from the bank

Loaning from the bank where you can influence the duration that the repayments continue for (usually between 1 and 10 years) provides another alternative. You can deduct each payment against AIA, with the loan coinciding with the lifetime of the equipment or other assets you are purchasing and you are not required to give the lender a percentage of your profits.

However, the drawbacks of loaning from the bank are that there may be upfront fees and requests for charges or debentures which need to be accounted for. Also, interest rate can be subject to fluctuations and this can make it hard for you to plan your finances long term. Monthly repayments can also have an adverse effect on your cash flow and it’s also risky if the loan is secured against your personal property or assets.


Leasing has long been a popular way to finance other high-expense business investments. Offering a degree of flexibility and with many different kinds of lease now available, has contributed to making this way of financing an office fit-out a popular choice.

What are the types of leasing?

●      Lease purchase

Also called a hire purchase, payments are made over a fixed period and at the end of this period, the asset becomes yours.  VAT-registered businesses can claim back the VAT on the asset up-front, interest payments can be offset against profit as part of a 100% tax allowance over the term of the contract and there is a capital allowance on the reducing balance.

●      Contract hire

Using an asset that remains the property of the finance company, which is also responsible for its maintenance and upgrade – can be a more affordable option to finance lease for this reason, and attractive because there is no big initial outlay.

●      Finance lease

Similar to lease purchase but you do not own the asset at the end of the contract, although you may wish to buy the assets at some point. Payments can be offset against tax and VAT can be reclaimed.

Lease purchase is when the payments are made over a fixed period, typically over 3-5 years. Once again, due to the fact that there is no need for large up-front payments, this method has gained popularity similarly to loan repayable in instalments. These are fully tax allowable, meaning they can be logged as a business cost and offset against profit for tax purposes. You preserve the borrowing power of your business, as this form of funding remains off the balance sheet. Again, similar to a bank loan, monthly repayments are planned and can therefore be easily budgeted for however ownership is transferred to you with a one-off final payment. The no-deposit option means cash flow is protected and VAT on the monthly repayments can be claimed back by Vat registered business. Yet again though, monthly payments could be a problem if you have poor cash flow and the final payment can be significant, especially If you decide to keep the assets. The length of the lease or purchase needs to be weighed up against the quality and durability of the assets and depending on the type of lease, you may not own the assets at the end of the contract.

Loan vs Lease – what’s the difference?

Whilst loans are similar to leases, it’s critical to understand they are not the same. There are some crucial differences, such as when making a lease, you can invest cash and credit into other areas of their business, it’s non-cancellable and there is one fixed monthly payment. It’s advantageous for using equipment that loses value and is inclusive of soft costs and it’s easy to upgrade or add equipment. In comparison to a loan, which ties up your credit line and limits the other investments you can make, rates can fluctuate and it’s convenient to upgrade or add additional equipment as needed.

Claiming depreciation on office fit outs

Did you know that owners of commercial property are entitled to make deductions on aspects of their office fit out? This applies to any building works undergone, equipment, and any other relative trades or capital expenses that help get a business up and running.

Many business owners are reducing the cost of their office fit outs by claiming depreciation based on the decline in value of each of their assets. Not only that, but they’re also claiming on all the transportation and installation expenses, as well as any future wear and tear.

Only the holder of a depreciating asset is entitled to make the claim. In most cases, the legal owner of a depreciating asset (the person or entity who paid for the fit out/office upgrades) will be its holder. Even if you lease your commercial premises, you’re still entitled to make a claim under ATO legislation.

Setting a budget upfront

It is crucial that you set a budget that is realistic. Whilst it is difficult to estimate each specific cost, setting an accurate budget for your project will then help office fit-out companies create a brief that fits within your budget and also your vision for the space.

It’s important to remember that your budget will vary depending on how many staff you have currently, how big your space is and what the current condition of the space is. Whilst it may seem sensible to go for a smaller space, remember that an office fit-out should last you several years, so it’s important to allow for expansion and growth in the future.

A good place to start is by adding your requirements into an office fit-out calculator as this will help provide an estimate budget and give you a basic idea of general costs based on your needs.

At Officeinsight, we come up with solutions for your office-based problems, and enjoy helping our clients get the most out of their budget, click here to learn more about us: About Us

Want to get started on an office-fit out project? We’d be happy to help you estimate the budget you require! Drop us an enquiry today:

Written on the 23rd May 2024 by

Working behind the scenes, Carlie assists with the purchasing and setting up of new projects and looks after day-to-day tasks within the office.

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