By Jana Truman

We are excited to have the opportunity to help you achieve your business goals with your new business in Tennessee.  Our goal is to help you be ready to be approved by your potential landlord when we find your new space.   We want to help you so the landlord will love your concept and be willing to allow you to use his or her building for your business. Part of that process is getting you ready to gain the trust of a landlord and, if you don’t have all the cash on hand, the bank will want to most of all the same documents and you will be already prepared when you meet with them if you are going to apply for a loan.  Because we believe in you and your business, we want to help you be as prepared as we can to help you succeed not just for your lease but for your business overall.  The best way we can put it is that we will help you put on your “landlord goggles” so you can look at your lease deal through their eyes and understand their mind set.  The landlord has most likely worked really hard to own their building and they have a lot of money invested in it.  The building IS their business.  They have to nurture and protect their business just like you will have to nurture and protect yours. They want to know how risky you are for them to have as a tenant.

We help you prepare for success by providing you with a Checklist of Documents you will either need to gather or to create.  Not all landlords will require everything on this list, but most will want at least some of the documents.  It may take you a little bit of time to gather them so we want to help you start right away. 

Checklist of Lease Preparation Documents

  1. Credit Score/Pay History
  2. Sufficient Money Saved or Available for Assets, Buildout and Ramp Up Time
    • Personal Guarantee             
    • Personal and Business financial statement and at least two years tax returns for you and your business partners.
    • A Sponsor.
  3. Pro forma, Business Plan and Cash Flow (Balance Sheet, Profit and Loss Statements)
  4. Personal Experience and Knowledge
  5. Use Type, Space Plan and Parking Needs Analysis
  6. Logo, Website, Marketing Materials

Checklist Explanation

  1. Credit Score/Pay History

A landlord (and the bank) want to know that you are credit worthy.  Do you pay your bills on time?  They want to see that you will pay your rent on-time too.  They may ask for your credit score or do a credit check themselves. Some landlords don’t’ worry so much about the score but put more emphasis on your payment history. 

  1. Sufficient Money Saved or Available for Assets, Buildout and Ramp Up Time

You may have a great idea and have thought out your concept, but landlords want to see that you can pay your rent, even if you fail.  Of course if you thought you were going to fail, you most likely wouldn’t be doing this in the first place, but a landlord is still going to want some actual assurances in the form of documentation.  They want to see you have enough cash on hand or the ability to get a loan to pay your bills and to live on for a while.

They may ask for the following:

  • Personal Guarantee:  A personal “security” document is separate from the lease and allows them to use something else you own as collateral for the lease.  If you don’t pay the lease, they can put a lien on the collateral.  Even if you are putting the lease in an LLC, landlords may still insist on a personal guarantee, making you and your business partners liable in the event that you don’t pay. The personal guarantee is a common practice.
  • Personal and Business financial statement and at least two years tax returns for you and your business partners:  A common mistake new owners make is thinking the income of their current job and business justify that they can afford the new rent, when in order for them to do the new business, they have to quit their current job and lose their current income stream.  Not paying taxes, not paying taxes on time, or not showing enough income, could be a red flag for the landlord and may result in them not allowing you in their space.
  • A Sponsor:  If you are not strong enough financially to hold the lease on your own, you may need to find a sponsor/cosigner.  If you are going to have a cosigner on the lease, how much reliance are you going to have on their financial support,  what is their relationship and extent of their support and their motivating factors? The sponsor will most likely be asked to provide the same type of financial documentation that you are asked.  Are they willing to share those on your behalf? Are they really willing to pay the rent if you can’t pay?
  1. Pro forma, Business Plan and Cash Flow (Balance Sheet, Profit and Loss Statements)

A pro forma is a word for projections of income.  The landlord wants to see that you have realistically thought things through as far as costs are concerned.  Is your business idea sound?  Have you taken into consideration cost of goods, labor costs, costs of insurance, cost of assets, costs of buildout, taxes, depreciation and bank debt, etc. even if the market takes a down turn?  If you have been running your business out of your house or a food truck or out of a temporary space, can you show sufficient cash flow to justify paying the rent, for all your costs, including your debt and paying yourself a living wage?

  1. Personal Experience and Knowledge

Even though your concept or business may or may not be new, landlords want to see that someone on your team knows what they are doing. Do they have solid experience in what you are going to do, or at minimum, in a closely related field?  Do you already have knowledge of your competition? Do you know where they are and what they charge? How are you different from your competition?  Landlord’s use this information to help them decide about your risk level to them.

  1. Use Type, Space Plan and Parking Needs Analysis

Zoning in certain areas may prohibit your type of business from being in their building.  Often the landlords already know what can and cannot go in their building.  But just in case, you will want to have a good idea too, so you don’t waste your time and money.  A good commercial realtor can show you where to go to check that for your location.  The landlord will want to know whether or not and how your concept will fit into their building. You will want to know the minimum and maximum size of space you need for your plan to work.  Is your use going to require more parking that what is currently available for the building?  A landlord is going to consider the times of day that would be your most intensive use of the parking lot and if that would conflict or negatively impact their existing tenants.  Will your use-type be a synergistic addition to their building?   

  1. Logo, Website, Marketing Materials

Your landlord is one of your most important “first sales’.  Landlords like to see you have thought through your marketing materials.  If you have a website, they like to be able to read about you and your products or services.  Think of it as an on-line business card that gives your concept validity. Having a good website and marketing materials can add a sense of security to your concept that will help them have more trust in you.  If you don’t already have one, your first website design doesn’t have to be the one that stays forever.  The first one can be targeted at showing your concept and your experience for the landlord’s sake.  Then, once you are in the lease, you can turn the focus of the website to your customers and make it fancy.

As we said at the beginning of this document, we understand this can be a daunting list at first.  In the Middle Tennessee Area, we are experiencing a Landlord’s Market.  This means there is very little space and high competition for the existing space.  We want to give you the edge over that competition and help you put your best foot forward in winning over the landlord’s trust and getting your business in the most advantageous location we can.  We are happy to have the opportunity to help you achieve your business goals. Call us today so we can help you find your best space.