When you develop business plans and budgets for your business, you might include a lump-sum estimate for items known as furniture, fixtures, and equipment (FF&E) – and that “guesstimate” is often used when they apply for business loans, too.
The problem? Often, these estimates are far below the real costs. As a result, you’ll give lenders the impression that you haven’t done your research. At worst, you could underfund your venture, leaving you in a financial bind.
In this article, you’ll learn what FF&E is and why it’s important to get several quotes for yours before you apply for a small business loan.
FF&E: What it is and why it matters
FF&E is a term for items that aren’t included in a commercial property. These are the furniture, fixtures, and equipment that you need to buy to furnish your space and support your operations. These items don’t fall into categories like inventory or supplies and they tend to depreciate faster than fixed equipment (such as large-scale manufacturing equipment or commercial real estate).
FF&E varies from business to business. For an office-based business, it may include office furniture, computer hardware, bookcases, conference tables and chairs, wall partitions, and other office items. For a restaurant, FF&E may include free-standing freezers and refrigerators, commercial ovens, sinks, tables, chairs, booths, and more.
With all the items that can fall into the FF&E category, you can’t rely solely on estimates when you’re budgeting for this expense. Without a defined list of items and quotes from vendors, it’s just too easy for the actual costs to far exceed any estimates.
That’s why responsible lenders may require you to have FF&E quotes when you’re applying for a small business loan. They want to know that you’ve done your research and you know what your actual costs will be, based on the quotes you’ve received.
This ensures that your loan is financed appropriately, ultimately setting you up for success. In addition, as part of the loan approval process, your lender may require quotes for FF&E to gain a more accurate assessment of the collateral that’s available to secure your loan.
How to get quotes for FF&E
When you’re applying for a loan for FF&E, you’ll need quotes to for those items to submit an accurate financing request. Ideally, you should get two or three quotes for all the items.
As noted earlier, it’s many lenders will require you to have quotes as part of the loan application process. The process usually involves the following steps:
- Make a list of all the FF&E you want to finance. Walk through your business and take note of new items and those that need to be replaced to include in your request. If you’re in the pre-launch phase, do your best mental step-by-step of your daily operations to make a list of all the FF&E you’ll need that should be covered through your loan.
If you have a restaurant, for example, you may have booths, tables, and chairs for your new patio area on the list. But did you remember the host podium, the umbrellas, the portable heaters, and the additional racks and equipment for the server station? - Contact several vendors to get quotes for the items you need. If you’re purchasing from online vendors, screenshots within shopping carts of online retailers will usually work for a quote, but check with your lender first.
You can also email vendors if you have a checklist. Simply highlight the items that you need from each vendor to show which items need quotes. Although this takes a bit of time, it’s important for accuracy. - Put the total costs into your business budget and then adjust accordingly. In some cases, you may need to increase the total amount of financing that you need. If you or your lender believe that the loan amount shouldn’t be increased, you may need to scale down some of your purchases or rework your plans.
Prepare your budget before you apply for a business loan
FF&E is a big piece of your overall budget, so you want to have this information ready before you apply for loans to present the most accurate financial picture. Some of your quotes may need to be updated as part of the underwriting process, but they should still be pretty close to the original amounts and shouldn’t impact your loan financing or closing date.
Do some initial research to create a project-cost outline before reaching out to lenders. If you have this information ready before meeting with lenders, the loan application process will be more efficient because lenders can use this information to prepare an initial cost structure.
If you have your FF&E lumped together as a single expense in your project-cost outline, you’ll want to create a more specific breakdown. Your lender will review the quotes to confirm that the loan amount reflects your financial needs. It also ensures that you have all the financing you need for success when your loan closes.
You can receive your funding in one of two ways depending on your lender and your loan agreement. You’ll either receive all funding at once in a lump-sum payment or your lender will disburse the funds directly to your vendors. This information should be made clear to you as part of your loan process, so if a lender hasn’t shared this, be sure to ask so that you know what to expect.
In addition, if you’re purchasing FF&E from a private party (such as another business owner) or are considering purchasing used equipment, your lender may request an appraisal of the equipment to ensure that it’s accurately presented and priced. This point, too, should be made clear to you as part of your application and underwriting process.
Pursuit is here to help
Whether you’re starting or expanding your business, Pursuit is here to support your success every step of the way. We have more than 15 loan options and a line of credit that can help you purchase FF&E and much more. Contact us today to explore how we can work together to keep your business growing.
