What Financials Are Needed for a Commercial Lease?

commercial buildings in a business park

There are several issues a new or existing business owner will need to tackle when considering a commercial real estate lease: Do I have the money to cover the length of the lease? What happens if my business isn’t as successful as I imagined? How far back would the landlord want to see my financials to determine if I am a good or bad risk? Will I need a lawyer or accountant to secure my new lease?

A business owner will want to carefully consider these factors and others before signing on the dotted line. Whether the lease involves a warehouse, retail space, or a simple office, landlords will want to see some specific financial and credit-history information about you and your business before cashing your check. This applies to both existing businesses and startups, because as in the case of any rental or lease (whether commercial or personal) the landlord wants to know if you can pay the rent.

It will benefit you greatly to present your financial situation in the best possible light in order to have a better negotiating position from which to work.

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What Financials Are Needed for a Commercial Lease?

There are several issues to consider before signing a commercial lease, and you must prepare your financial documents carefully before beginning this process. In the case of a startup company without a rental history or “paper trail” this is an extremely important factor. As with any legal consideration, when in doubt be sure to consult a qualified attorney.

If your business is a startup, landlords realize you probably won’t be collecting a profit for at least six months and possibly longer, and that you will have expenses in addition to rent such as inventory, payroll, and other financial obligations. Landlords typically require you to pay the first month’s rent, as well as a security deposit of no less than one month’s rent upfront, and may require more if you lack strong financials and credit. When presenting your financial situation to the potential landlord, keep in mind they are most interested in seeing what you will have left once you’ve covered all the upfront costs involved in the business.

Below are some typical requirements your future landlord will require before you can sign a commercial real-estate lease. These items are common to most leases but there are other specifics depending on the type of business you own and what type of space you plan to lease. Your landlord may ask for one or more of the following:

Bank references

One thing to carefully consider is if you rely on a small-business loan for your funding, then you will most likely need a letter from your bank showing pre-approval for a specific amount of money that you can present to your future landlord.

Current credit reports/scores from all three reporting bureaus

Your credit scores are important for the landlord to know you have a good credit history and are likely to continue to maintain it.

Previous/current landlord references (for an existing business moving to a new location)

Just like a residential rental, your future landlord will want to know you have a history of maintaining your rental in the way the owner would for himself or herself.

Personal and corporate financial statement(s)

Most landlords require two years of financial statements. The financial statements need to include a profit and loss statement and a balance sheet. For a startup or sole-proprietorship, they will require the owner’s personal financial statement, since the business is basically you and whatever financing you have obtained in this regard.

A copy of your business plan

If you are an unknown entity, the landlord will want to see what your plan is to make money and become successful in much the same way as any lender.

Business bank statement(s)

These are designed to show you have the necessary funds to pay the rent both now and well into the future. Ideally, there would be sufficient funds to cover the entirety of your lease. It is important to the landlord that you will be able to pay the rent for up to a year until you turn a profit.

Prior tax returns

The landlord would typically want to see two years back for either your corporation or personal returns, or both.

Corporate Entity

To prepare for lease approval as a corporate entity, you will most likely need to present the following documents:

  • Certificate of incorporation
  • Articles of incorporation (with any amendments included)
  • Bylaws (with any amendments included)
  • Director names (all current directors must be listed)
  • Officer names (all current officers must be listed)
  • Certificate of good standing in your particular state in the case of moving your organization
  • Corporate Resolution authorizing the Officer to execute the Lease Agreement

Limited Liability Company (LLC)

To prepare for lease approval as an LLC, you will most likely need to present the following documents:

  • Names of current members and managers
  • Articles of organization (with any amendments included)
  • Certificate of filing
  • Certificate of formation
  • Names of current officers
  • Good standing certificate (when applicable)
  • Regulations (with any amendments included)

General/Limited Partnership

To prepare for lease approval as a General or Limited Partnership, you will most likely need to present the following documents:

  • Name of the general partner
  • Names of limited partners
  • Partnership interest percentages (where applicable)
  • Certificate of filing
  • Certificate of formation
  • Partnership agreement (and any amendments attached)

Starting a business and signing a commercial lease are very exciting, but it’s important to look before you leap. Make sure all your bases are covered to protect both you and your new landlord from disputes, misunderstandings, and legal wrangling before you move in. Make sure your paperwork is done correctly to save yourself a headache later on and hopefully you will enjoy a happy and successful commercial lease between tenant and landlord. Having your financial duck in a row prior to selecting a location also allows you to negotiate the lease terms from a position of strength.

Gidget Graham

Click Here to Leave a Comment Below
Mark - November 22, 2021 Reply

This is great information. When does the tenant present their social security number to be checked for credit – after the LOI’s are agreed and the attorneys are working on the lease? Thanks.

Sale Lease Bad Credit - May 16, 2022 Reply

We recognize that small businesses are the driving force to grow our economy. In good times, as well as the challenging times, business owners need a fast cash flow solution to make payroll, purchase new equipment, expand inventory, pay taxes, etc. Fact is, our lenders don’t care what you use the funds for, as long as it helps grow your business and increase your revenue!
If your company was turned down by traditional lending sources, such as banks and other commercial lending institutions, Guaranteed Business Funding can help. Let us take all of the leg work out of the search and find the best type of loan and let you focus on what you do best. We bring you choices and you decide which loan option best suits your needs. We will also work on your behalf to get the best rate and term possible. Alternative lenders rely on Guaranteed Business Funding to bring them quality business owners in need of capital.

Sheyrl - December 5, 2022 Reply

Awesome and useful.

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