Fit out finance constitutes a specialised subset of asset finance designed to fund the acquisition and installation of fixtures, fittings, and equipment required to render commercial premises operational.
Commercial tenancies in Canberra's central business district and suburban office precincts such as Braddon, Kingston, and Barton frequently require substantial capital expenditure to meet operational specifications. Fit out finance provides a mechanism to distribute this expenditure across a defined term, preserving working capital while enabling businesses to occupy premises that meet functional and regulatory requirements. The facility is secured against the assets being financed, and in certain structures, may also reference the lease agreement as supplementary collateral.
What Assets Qualify Under a Fit Out Finance Facility
Fit out finance facilities extend to fixed and removable assets installed within a commercial tenancy to support business operations. Qualifying assets include partitioning systems, cabling and data infrastructure, HVAC installations, lighting, flooring, joinery, signage, and office equipment such as workstations, storage, and reception furniture. In hospitality and medical sectors, the facility may also encompass specialised equipment including commercial kitchen installations, refrigeration units, dental chairs, diagnostic equipment, and sterilisation systems. The asset must be capable of identification, valuation, and removal, and must retain residual value at the conclusion of the facility term. Lenders will typically require a detailed schedule of assets and may commission an independent valuation where the loan amount exceeds certain thresholds.
Consider a medical practice establishing a clinic in Phillip. The fit out includes reception joinery, consultation room partitioning, medical equipment, and IT infrastructure. The lender assesses each component for residual value and security enforceability. Fixed installations such as partitioning are evaluated on the basis of their transferability or reinstatement cost, while portable items such as medical equipment are valued on secondary market pricing.
How Fit Out Finance Differs from Conventional Equipment Finance
Fit out finance is structured to accommodate assets that are integrated into leased premises, rather than standalone equipment held at a business's owned location. Conventional equipment finance typically applies to mobile or standalone assets such as vehicles, factory machinery, or IT hardware that are not affixed to a tenancy. Fit out finance must account for the landlord's interest in fixed improvements, the term of the commercial lease, and the risk that the tenant may vacate prior to the facility's maturity. Lenders will ordinarily require that the finance term does not exceed the remaining lease term, or that the lessee provides evidence of lease renewal options. Where the fit out includes removable assets, the lender may require the tenant to warrant that removal will be permissible under the lease and that the assets will not be claimed by the landlord as fixtures.
In a scenario where a professional services firm executes a five-year lease in Canberra City with two five-year options, the lender may approve a fit out finance facility with a term of five years, provided the firm demonstrates financial capacity to meet repayment obligations and provides evidence of the lease and option terms. If the lease term were shorter, the lender would typically require the facility to amortise within the initial lease period or obtain a landlord waiver permitting asset removal.
Facility Structures and Repayment Mechanisms
Fit out finance may be structured as a chattel mortgage, hire purchase, or finance lease, each with distinct legal, tax, and accounting implications. Under a chattel mortgage, the borrower acquires legal ownership of the assets at drawdown, with the lender retaining a registered security interest. The borrower claims depreciation and interest deductions, and may claim input tax credits on the GST component of the purchase price, subject to GST registration. Fixed monthly repayments apply across the term, and a balloon payment may be structured at maturity to reduce periodic commitments. Hire purchase operates similarly, but legal title transfers only upon final payment. A finance lease transfers effective economic ownership without legal title, and may offer alternative tax benefits depending on the lessee's accounting treatment and the lease term relative to the asset's useful life. Lenders will require the borrower to demonstrate serviceability, and may request financial statements, tax returns, and cash flow projections. The interest rate applied will depend on the borrower's credit profile, the quality and liquidity of the collateral, and prevailing market conditions.
Tax and Depreciation Considerations for Commercial Fit Out Assets
The tax treatment of fit out assets depends on their classification under the Income Tax Assessment Act and the structure of the finance facility. Assets acquired under a chattel mortgage or hire purchase are ordinarily eligible for depreciation deductions under the capital allowances regime. Certain assets may qualify for accelerated depreciation or immediate expensing under temporary measures, subject to eligibility thresholds and the timing of installation. Fixed improvements that are considered part of the building structure may be depreciated at a lower rate or may be ineligible for deduction by the tenant, depending on whether the asset is categorised as plant and equipment or a capital works item. Tax benefits available under a finance lease will depend on the lease classification and whether the arrangement is treated as an operating or finance lease for accounting and tax purposes. Borrowers should obtain advice from a registered tax agent or accountant to ensure the facility structure aligns with the intended tax outcome and that depreciation schedules are prepared in accordance with applicable legislation.
Documentation and Compliance Requirements
Lenders require detailed documentation to assess and approve a fit out finance application. The borrower must provide a schedule of assets, itemised quotations or invoices, a copy of the commercial lease, evidence of ABN and GST registration, recent financial statements, and where applicable, a director's guarantee or personal security. If the fit out involves construction or installation services, the lender may require evidence of licensing, insurance, and compliance with relevant building codes and occupational health and safety regulations. Drawdown is typically staged in line with installation milestones or invoice schedules, and the lender may require evidence of completion and delivery prior to final disbursement. The facility agreement will specify representations and warranties regarding asset ownership, the absence of prior encumbrances, and the borrower's authority to enter into the transaction. Non-compliance with documentation or disclosure obligations may result in delayed approval, modified terms, or withdrawal of the offer.
Lease Term Alignment and Asset Removal Provisions
The term of the fit out finance facility must be reconciled with the duration of the commercial lease to mitigate the risk of asset stranding or premature realisation. Lenders will ordinarily restrict the facility term to the lesser of the asset's useful life and the remaining lease term, including any exercised options. Where the lease does not extend beyond the proposed finance term, the lender may require the borrower to obtain a landlord's waiver permitting removal of the assets, or to provide alternative security. The waiver must confirm that specified assets remain the property of the tenant and may be removed upon lease expiry or earlier termination, and that the landlord waives any claim to those assets as fixtures. In the absence of such a waiver, the lender may decline the application or reduce the loan amount to reflect the diminished security position. Borrowers should negotiate asset removal rights during lease execution to avoid subsequent disputes and to maintain flexibility in financing arrangements.
Vendor Finance and Dealer Finance in Fit Out Transactions
Some suppliers of fit out services and equipment offer vendor finance or dealer finance as an alternative to third-party lender facilities. Under these arrangements, the vendor extends credit directly to the purchaser, often at concessional rates or with deferred payment terms. While such arrangements may expedite transaction execution and reduce documentation requirements, they may not offer the same regulatory protections or flexibility as facilities provided by licensed credit providers. Vendor finance may also restrict the borrower's ability to negotiate on price or to obtain competitive quotations, and may include terms that limit the borrower's rights in the event of defects or non-performance. Borrowers should compare vendor finance proposals against facilities available through brokers who access asset finance options from banks and lenders across Australia, ensuring that the total cost of credit, security requirements, and termination provisions are clearly understood prior to execution.
OAUM Securities maintains panel relationships with multiple lenders and can structure fit out finance facilities that align with lease terms, asset types, and the specific tax and accounting requirements of ACT-based enterprises. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What types of assets can be financed under a fit out finance facility?
Fit out finance covers fixed and removable assets installed in commercial premises, including partitioning, cabling, HVAC, lighting, flooring, joinery, office equipment, and in certain sectors, specialised equipment such as commercial kitchen installations or medical diagnostic equipment. The asset must be identifiable, capable of valuation, and retain residual value at the end of the facility term.
How does the term of the commercial lease affect the fit out finance facility?
Lenders typically restrict the finance term to the lesser of the asset's useful life and the remaining lease term, including exercised options. If the lease does not extend beyond the proposed finance term, the lender may require a landlord's waiver permitting asset removal or alternative security to mitigate the risk of asset stranding.
What is the difference between a chattel mortgage and a finance lease for fit out assets?
Under a chattel mortgage, the borrower acquires legal ownership at drawdown and claims depreciation and interest deductions, while the lender retains a security interest. A finance lease transfers effective economic ownership without legal title, and the tax treatment depends on the lease classification and term relative to the asset's useful life.
Can I claim tax deductions on fit out assets?
Tax deductions depend on the asset classification and the finance structure. Assets acquired under a chattel mortgage or hire purchase are generally eligible for depreciation deductions under the capital allowances regime. Fixed improvements classified as capital works may be depreciated at a lower rate or may not be deductible by the tenant, so professional tax advice is recommended.
What documentation is required to apply for fit out finance?
Lenders require a schedule of assets, itemised quotations or invoices, a copy of the commercial lease, evidence of ABN and GST registration, recent financial statements, and where applicable, a director's guarantee. If construction is involved, evidence of licensing, insurance, and building code compliance may also be required.
