Quick answer
A new commercial lease needs cash well beyond the first month's rent: a security deposit or bank guarantee, fit-out, outgoings, legal and advisory costs, signage, equipment, and enough working capital to carry the business until the new site trades. Budget for make-good at the end too. Without property, these costs can be funded in pieces sized on your turnover.
Key points
- The first month's rent is usually the smallest upfront cost of a new lease.
- Security deposits and bank guarantees tie up cash for the whole lease.
- The trading gap before a new site earns is often underestimated.
- Split funding: equipment finance for removable items, unsecured for the rest.
Why does a lease cost so much more than the rent?
When you look at a vacant shopfront or office, the advertised rent is the number that sticks. But by the time you open the doors, you’ll usually have paid for a lot more: security, fit-out, fees, equipment and weeks of costs before the first sale. For a business owner without property, that upfront bill is often the moment funding first becomes necessary.
business.gov.au’s guide to choosing a location prompts owners to ask how much they can pay for a fit-out before they start selling to customers, and to budget for rent, utilities and insurance, with rental increases typically yearly. This guide fills in the rest.
What does the full upfront budget look like?
| Cost | What it is | When it’s paid |
|---|---|---|
| Security deposit or bank guarantee | Protection for the landlord, held for the lease term | At signing |
| Rent in advance | Often the first month, sometimes more | At signing or handover |
| Legal and advisory costs | Lease review, accountant’s advice | Before signing |
| Fit-out | Joinery, electrical, plumbing, flooring, lighting | Before opening |
| Equipment and furniture | Machines, shelving, POS, furniture | Before opening |
| Signage and branding | External signs, window graphics | Before opening |
| Permits and approvals | Council, health or building approvals where needed | Before opening |
| Outgoings | Share of rates, building insurance, common-area costs | From handover |
| Trading gap | Rent, wages and bills before revenue builds | First weeks or months |
| Make-good (future) | Restoring the space at the end of the lease | End of lease |
Not every lease has every item, but most have more of them than first-time tenants expect.
Bond or bank guarantee: how do they differ?
Landlords usually want security. It comes in two main forms:
- A security deposit (bond): cash you pay the landlord, held until the lease ends and conditions are met.
- A bank guarantee: a bank’s undertaking to pay the landlord up to a set amount if you default. Banks usually require you to hold matching funds or provide security for the guarantee, so the cash is still tied up.
Either way, that money isn’t available for the business for years. Negotiate the amount if you can, and ask how and when it will be returned. In Victoria, for example, the Small Business Commission’s retail leasing guidance covers negotiating and returning security deposits under the Retail Leases Act 2003; other states have their own retail lease laws and small business commissioners.
What are outgoings, and why do they matter?
Outgoings are the building’s running costs passed on to tenants: council rates, building insurance, common-area cleaning and maintenance, and similar items. They can add meaningfully to the headline rent. Retail lease laws in each state set rules about what landlords must disclose; the VSBC, for instance, provides guidance on the information landlords must give tenants about outgoings and on disclosure statements.
Read the outgoings estimate carefully and ask how it has changed over recent years.
How do you budget the trading gap?
This is the cost most often underestimated. From the day you take possession, you pay rent (unless you’ve negotiated a rent-free period), and often wages and utilities too. Revenue arrives later: after the fit-out, after opening, and after customers find you.
A simple way to estimate it:
- List weekly costs from handover: rent, outgoings, wages, utilities, insurance.
- Estimate weeks of fit-out before opening.
- Estimate weeks after opening before revenue covers those costs. Be conservative.
- Multiply weekly costs by the total weeks.
For a business moving from an existing site, the gap may be short. For a new venture or a second location, it can be the single largest line in the budget.
How can you fund upfront lease costs without property?
Split the costs by type, and use the funding that fits each part:
| Cost type | Funding that often fits |
|---|---|
| Removable equipment and furniture | Equipment finance, secured by the items |
| Built-in fit-out and signage | Unsecured loan sized on turnover |
| Bond, rent in advance, trading gap | Unsecured working capital or a line of credit |
| Landlord contribution or rent-free period | Negotiated in the lease; reduces what you borrow |
business.gov.au’s advice on leasing or buying equipment is a useful reference for the equipment part: leasing means renting equipment you don’t own, with lower upfront costs; buying means owning it, potentially with a loan.
To see roughly what your turnover could support, try the unsecured borrowing estimator. Or, if you’re about to sign, send us a quick enquiry and a specialist can help you structure it before you commit.
What should you negotiate before signing?
Many upfront costs are negotiable, especially on a longer lease or a space that’s been vacant:
- Rent-free period to cover the fit-out.
- Landlord fit-out contribution or incentive.
- Size of the security deposit or guarantee.
- Make-good scope, particularly if the space already had a similar fit-out.
- Rent review method and any caps.
- Options to renew, which support funding for a larger fit-out.
business.gov.au notes that real estate lawyers can review lease agreements. The cost of that review is small next to the commitments in a multi-year lease.
Why does lease length matter to a lender?
If you’re borrowing for a fit-out or other costs tied to the premises, a lender will ask how long you’ll be there. The fit-out should earn its keep well before the lease ends. A five-year term with options gives comfort; a short term with no option makes a large fit-out harder to justify. Our page on fit-outs for tenants explains what lenders ask.
A worked example (illustrative)
A hypothetical café owner is moving from a small kiosk to a larger leased shop. The upfront budget looks like this:
- Security deposit: about three months’ rent.
- Rent in advance: one month.
- Legal review of the lease: a modest professional fee.
- Coffee machine, grinders, fridges and oven: $58,000 from a supplier.
- Joinery, electrical, plumbing and flooring: $72,000 in builder’s quotes, less a landlord contribution negotiated at $15,000.
- Signage: $6,000.
- Trading gap: six weeks of rent, outgoings and wages before opening, plus four weeks of ramp-up.
The equipment goes on equipment finance. The built-in work (after the landlord contribution) and signage are funded with an unsecured loan. The bond and trading gap are covered by cash reserves and a small line of credit. No property is involved. All figures are illustrative.
What about the end of the lease?
Make-good clauses may require you to return the premises to their original condition, which can mean removing the fit-out you paid for. Ask about it before signing, get the scope in writing, and set aside something each year toward it. It’s far easier than finding a lump sum on the way out.
If you’re already in a lease and thinking about how landlords and lenders see tenants, our page on leased premises covers it.
Sign with your eyes open
A new lease is a big step, and it should be exciting, not terrifying. Tell us what the move involves and we’ll help you work out the funding before you sign.
We don’t check your credit when you first get in touch. Your enquiry goes to one specialist, not a queue of lenders, and they’ll help you structure the costs sensibly. Please include accurate turnover, quotes and lease details on the form so the structure we suggest suits the lease you’re about to sign. Check your options before you sign.
Frequently asked questions
What's the difference between a bond and a bank guarantee?
A bond or security deposit is cash paid to the landlord and held for the lease. A bank guarantee is an undertaking from a bank to pay the landlord up to a set amount if you default; the bank usually requires you to hold funds or security against it. Both tie up money.
Can I borrow for a lease bond?
Often, yes, as part of a working capital facility for a trading business. The lender will want to see the business can carry the new rent and the repayments together.
What are outgoings?
Costs of running the building that a lease may pass on to tenants, such as council rates, building insurance, cleaning of common areas and maintenance. Retail lease laws in each state set rules about disclosing them.
Should I get legal advice on the lease?
Yes. business.gov.au notes that real estate lawyers can review lease agreements. A lease is a long commitment, and small clauses such as make-good and rent reviews can carry large costs.
How long should the lease be if I'm borrowing for a fit-out?
Long enough that the fit-out pays for itself well before the lease ends. A term with renewal options gives you, and a lender, more comfort.