If you’re an entrepreneur interested in leasing commercial property, you probably have your checklist of amenities prepared. It’s equally important to have your financial house in order before you start touring local spaces.
Some property owners will come to the table with a rigid set of criteria, while others will offer more flexible terms. This is dependent on the local market and the availability of commercial space in your community. If you live in a buyer’s market, you might find you have the ability to leverage an agreement that’s customized to your needs.
Use this checklist to help you plan.
Prepare your financials: Which ones will you need for a commercial lease?
First and foremost, be ready to make your case that you have the cash flow to pay your monthly lease on time. When you have payroll, inventory, equipment loan payments and other demands, your future landlord will want some assurance you have enough coverage.
Established business owners may be asked to provide financial documents: business financial statements, balance sheets and profit/loss statements.
If you’re part of a startup, you may be asked to show personal financial information, such as your tax statements from the past 2-3 years. It’s also helpful to show your business plan, along with any funding sources. If you were granted a Small Business Administration (SBA) loan, bring the paperwork showing you’ve been approved for a specific dollar amount.
What credit score do you need to rent commercial space?
If you’re a sole proprietor or a sole business corporation, the property owner may request a credit check. The same goes if you’re just launching your venture and have little financial data. The reason for the credit check is to help your prospective landlord gauge the risk of doing business with you. If you have a solid credit history, that shows you’re likely to make good on your monthly obligations.
Which score is optimal to rent commercial property? A good credit score for FICO and Vantage ranges from 690-719, on a scale from 300 (poor) to 850 (excellent).
Get a professional in your corner
Unless you have a rock-solid, trustworthy connection to hammer out a fair deal, it’s best to consult with an experienced real estate agent or attorney when you're looking to lease commercial property. They can advise you on when to push for better terms, and give you a heads-up if they think you're not getting a square deal.
But their professional advice can help you avoid costly errors or committing to terms that don’t work for your business model. Because contracts can be filled with jargon, it helps to have someone who represents your interests to explain the terms in plain English and help you talk through the pros and cons.
Thinking of taking your business to international markets? Learn about our SBA export loans
Know your types of commercial leases
There are three types of leases for commercial properties: Gross lease, net lease and percentage lease. If you’re looking for a space, you’ll want to consider the pros and cons of these contracts, and which works best with your business model.
Some property owners will work with only one of these specific leases. But if you have some leverage, you might want to consider negotiating under a different lease type that suits your business model.
A gross lease is where you pay a flat rental fee to use the property. It comes with all property expenses baked into the monthly lease, including taxes, maintenance, utilities and insurance.
- Well-suited for those who are starting. With fewer responsibilities for upkeep and maintenance, you can focus solely on your venture.
- Associated with higher monthly costs, but with fewer headaches.
The business owner pays a lower rental fee, but is responsible for paying the bills on the property, including taxes and utilities, and maintenance.
- Essentially, you get all the responsibility of property ownership, but none of the benefits of property ownership.
- On the plus side, you do get more transparency and a certain amount of control over your monthly costs.
- Because you’re taking on responsibility, you can negotiate for a lower monthly lease.
The business owner pays a base rent plus a percentage of gross revenues.
- Because it’s revenue-dependent, the property owner would offer a lower base rent. You would also negotiate a breakpoint, the minimum amount of monthly sales where the percentage payments would kick in.
- The property owner has a vested interest in your success, which means they’re more aligned with your business interests.
Leverage your local expertise
Leasing a commercial space for your business is a huge step forward. As you prepare to scale, Minnwest Bank offers the big bank resources and expertise you need. But our approach allows more flexibility and personalization.
Get started today by reaching out to one of your trusted hometown experts. Minnwest Bank has branch locations in convenient locations throughout Minnesota and southeastern South Dakota.