In a tough lending environment, prospective borrowers are increasingly being asked for security to support funding applications for fit-out projects, particularly in sectors which might be susceptible to future lockdowns, such as hotels, restaurants and leisure businesses.

In lending parlance ‘secured’ typically refers to charges over bricks and mortar premises, not, as some assume, to guarantors.

In response to this, Fit Out Finance has connections with several reputable secured loan providers who are able to offer facilities supported by first, second or third charges against freehold or long -leasehold premises, whether those premises are commercial or residential.

With the additional security of charges over property, lenders will be more relaxed over other transaction terms and able to offer much more flexibility against conventional equipment leasing facilities. With security we can offer facilities over periods up to 10 years rather than the usual 5 year maximum. In a recent case our client benefitted from a 6-month payment holiday at the start of the agreement, which means that they are able to get the fit-out completed and the restaurant fully open and earning money before they start to make monthly payments.

Additionally, we can be far more relaxed around deposits, pre-payments and staged payments than on a conventional leasing transaction. These are things that can improve your relationship and terms with your chosen fit out contractor or selected trades.

The underlying transaction can be documented as a loan or a lease arrangement to suit your tax and accounting requirements and won’t be restricted by the nature of equipment or the number of suppliers, which sometimes affect such transactions.

Properties acceptable as security include the main residence, rental properties (either individual or portfolios) or commercial properties. In some cases, we are also able to consider non bricks and mortar assets as security, including classic vehicles, boats or share portfolios. The key criterion is that it can be professionally valued, and it is possible to put a charge on it.

On a cautionary note, you need to give serious thought to putting residential property up as security, particularly when that property is the family home. For our part, Fit Out Finance also takes this very seriously. So much so that we will stipulate that you must take professional advice from a recognised legal practitioner before committing to a transaction. Additionally, we will never rush or push you into signing. We respect the need for careful consideration before entering into a secured finance transaction

For businesses that own their own premises – for example hotels – it makes a lot of sense for the charge to be over those commercial premises. Alternatively, charges can be split over multiple investment properties in a portfolio, thus leaving the all-important family home out of the equation.

Whilst the majority of our business is likely to remain as conventional unsecured lease, loan or hire purchase, the availability of good, professional secured loan facilities means that fit out finance can be available in circumstances where traditional agreements simply won’t work.

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All businesses have their own myths, a remarkable persistent myth around business borrowing is the notion that you have to write a ‘special’ business plan for lenders; by special, the implication is always that figures need to be bumped up, that it should include glossy pages and pictures and that there should be loads of superlatives and frivolous promises.

And here’s the thing – at best this ‘special’ plan will be a waste of time, at worst it will be an extremely costly error that will actually put lenders off dealing with you.

Over the years, I’ve had clients who pay accountants or consultants £5,000 or more for plans that are frankly, comical – the biggest irony is that the firm who has charged all the money wants to haggle a couple of points on the interest rate to justify their fee.

So, to save you time and money, here are 3 reasons why you shouldn’t invest huge amounts of time on effort in a special plan for lenders:

  1. It’s your business and your plan. Quite simply you really do need to create a straight forward plan which illustrates both the need for money and the capacity to repay it. Without that simple but realistic plan you won’t know how much you need, when you need it or what type of funding is best for you.The most expensive form of borrowing is the one that doesn’t meet your needs.
  2. It’s a discussion document. If your plan is read by the decision maker, the next stop is that they will want to talk it through – If you have made up facts and figures to impress a lender you won’t be able to discuss them with confidence or depth, all you will have done is prolonged the journey to being declined.
  3. Lenders aren’t stupid. The implication of the ‘special plan’ myth is that lenders will automatically reduce everything by a certain percentage, hence you have to build it up to counter this. It won’t happen. What they will do is challenge certain assumptions. If those assumptions are way off the mark they will assume that all other assumptions are similarly amiss. If you are informed and close to reality, they will judge you as such.

So yes, you do need a thought through plan, and it does need cashflow projections. You need it for yourself before you even contemplate looking for funding, otherwise you will be pitching cluelessly between different types of funder and the worst eventuality is that you will succeed in getting funding against a fictional document.

You might want professional input from an accountant or a marketing specialist, but you, not they should create the plan.

Save yourself time and money, there is no need for

  • Glossy printing / presentations.
  • Pages and pages of hyperbole and waffle.
  • Mountains of technical detail.
  • Pretty financial graphs.
  • A mission statement.

KISS!