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Tenant Credit & Financial Health: Your Client’s Credit and How That Affects You as a Broker


Derek Savage
Derek Savage
Updated May 29, 2019

Our brokers are finding that the modern small to mid-sized business is fast-moving and self-directed in their search for commercial space. This is especially true within the first few years of existence when their credit & financial health may not be ideal. Successfully servicing this growing client can present a few challenges right from the start.

Sometimes as brokers we only focus on the initial hurdles such as meeting their budgetary criteria or securing them space in their ideal zip code. We tend to forget about a big hurdle that can make or break a deal: the Tenant’s credit and financials.

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How to approach this initially:

In your initial conversations get as much information about their business as possible. How long have they been in business? Do they have existing locations?  If it’s a startup business, ask them for their business plan or a list investors. Not only is this a great way to qualify them but it also allows you to demonstrate your value by preparing them for future discussions with Landlords.

Once you have a general sense of their business and their financial preparedness, ask about their ideal space. Is their use more generic where a second generation space would be easy to find (like a standard office) or is it a requirement that it would need a large investment (such as custom use)? If their requirement will likely require a substantial build-out, this is a great way to ask if they have funds allocated for this in their business plan or if they are expecting the Landlord to pay for the construction.

The Landlords perspective:

Often times tenants are hesitant to give up financial information. A good way to approach this is to view the Landlord as if they are a bank giving a loan. Would you give someone a mortgage without first seeing their financials? The Landlord wants to feel comfortable that the money they are essentially lending can be recuperated as well as rent be paid through the duration of the lease term.

What do Landlords ask for?

For an individual or if an individual is a guarantor on the lease (typically):

  • Last two years of tax returns.
  • Current bank account balance (s): checking, savings, and any other liquid accounts.
  • Larger firms will have a Tenant application that goes in-depth with Tenant’s assets and liabilities.

For a company:

  • Profit and Loss (P&L) statement for the last two years. If they are a larger company, public or have investors, they will usually have audited financials.
  • Balance sheet and potentially tax returns.

Overcoming Credit Issues

Second generation space:

Find space that your Tenant can take as-is. This limits the liability for the Landlord especially for small Landlords who just want their space leased. This is harder for more institutional Landlords like REITs.

Tenant pays for build-out:

If the Tenant has some capital and will be investing in the space, bring this up with the landlord. At the end of the day, Landlord will have a renovated space if the tenant leaves making the space is easier to lease out.

Increased deposit/prepaid rent:

This gives the Landlord more guaranteed income. If there is additional security deposit, try to get it to “burn off” and go towards rent later in the lease, if they are in good standing.

Personal guaranty:

If newly established company, get a personal guaranty by principal. Try to limit to what is reasonable based on the Landlord’s investment in the space (first year or two if minimal work, full initial term of Lease if substantial work).

Get creative:

How can you show they will be successful or have financial backing?

  • This is a new business for the person, but they have ten-plus years in the industry and have been successful in other endeavours.
  • It’s a new business but they are currently in funding stages with investors or venture capitalists.
  • Your client can get a line of credit with their financials institution. This can support the operation while it is starting up.
  • Your client has investment accounts that could be liquid if needed such as 401ks, CDs, stock.

It is your job to not only find space for your client but help them through the entire process, especially if this is their first time or a new venture. The more information you can get from them, the better you are able to help the Landlord see your client being a long term Tenant for them. 

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