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Client asked on 06 Jan 2012 in Startups.

What is typically required to be considered for a commercial lease?

A couple of months ago, I tried to lease a commercial property using my own money. When I called the agent, they said I need to have at least $250,000 to consider me as a potential tenant, but I don't have that much. Am I doing something wrong?

Gregory O. Odum
Gregory O. Odum advised on 08 Jan 2012
Finance and Strategy Expert - Small/Mid-Sized Businesses
You're not doing anything wrong. I experienced the same challenge when I started my first company in DC a few years ago.
Property managers are always weary of start-ups for obvious reasons: They either don't have enough capital, or they do not have stable cash flow.
Here are your options:
1. Look for sub-leasing opportunities, where an established company seeking to break their lease will allow you to rent the property for a year. This gives you time to prove your business to the property manager.

2. Beware of triple net leases. These are leases where tenants have to pay a percentage of the property taxes...Property managers might decline your lease request if they doubt you'd be able to absorb triple net leases.

3. A lot of landlords also charge you a percentage of your monthly revenue, once you achieve a certain figure. When I had my telecom retail store (in a high traffic part of DC), the property manager would randomly visit my store - to gauge the foot traffic in my store, and to estimate how much revenue I was generating. At the end of the month, she would ask me for my monthly revenue spreadsheet.

4. Depending on your start up capital, property managers might request 6 month lease as a security deposit - some might ask for 12 months. If your business is not dependent on foot traffic, I suggest looking for "sub prime" commercial space. You can get a 12 month lease, with an option.

Good luck! commented on 08 Jan 2012
thanks! will give it a try.

Carter Hoerr
Carter Hoerr advised on 08 Jan 2012
Experienced Business Manager; National Expert, Online Meal Ordering
Gregory is correct: commercial leases are really tough if you're not already an established business with credit and a track record. If your business absolutely needs commercial office or retail space -- are there alternatives? -- then a sub-lease might be an option. Good luck!


Most recent advice

Carter Hoerr advised over 3 years ago
Gregory is correct: commercial leases are really tough if yo...

Gregory O. Odum advised over 3 years ago
You're not doing anything wrong. I experienced the same chal...
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