- How to Avoid Sky-High Delinquency Rates -
In the current economic climate, businesses have been failing. This means that commercial landlords lose money due to higher-than-normal delinquency rates. Qualifying tenants is the only way to reduce these delinquency rates over the long term.
By qualifying potential tenants, you can verify that there is a potential for long-term success for the business looking to occupy your lease space.
To do this, you need to ask some questions and verify the information.
Who will guarantee the lease? A guarantor is like a landlord’s insurance policy. The guarantor is the individual who is responsible for payment of the lease in the event there is a default on the terms of the lease agreement.
Get permission from the prospective tenant and the guarantor to get an up-to-date credit report. This is particularly important when dealing with a new business with limited or no business history.
How does the prospective tenant plan to operate the business? Ask for a copy of a business plan as well as business history. In the case of a new business owner, you may wish to ask for a copy of the person’s resume to see how his or her personal experiences may translate into the success of the business. A business plan should contain an executive summary – an overview of the entire plan, a market analysis specific to their business, a company description and the company financials.
Is there a pattern of financial success? This is often the most difficult element to verify with a new tenant. A credit report does not establish whether or not there is a history of profitability for a company, and with new businesses there is no established history, which makes them a higher risk than an established business.
For existing businesses, requesting tax returns will allow landlords to analyze whether there is potential for long-term success of the business.
For a new business the guarantor is even more important because of the lack of financial history.
Regional companies operating under a corporate model will often refuse to provide a guarantor. As these companies tend to be part of larger entities they pose less of a delinquency risk.
Ultimately, the landlord needs to be satisfied that the level of risk does not exceed the potential profits to be gained from the tenancy without a guarantor.
Franchises also work on a corporate model. The landlord may wish to ask for a cosigner for the franchise rather than a guarantor on the lease. This will at least provide the landlord with some protection from delinquency of the tenancy by guaranteeing that the franchise agreement is in place and in good standing throughout the duration of the tenancy agreement.
As a landlord you can increase profits by reducing the risk of tenant delinquency.
The best way to ensure the long-term viability of any tenancy agreement is to ensure that the business will have the potential for long-term success.
By having a guarantor, checking credit as well as the business financials and establishing a pattern of financial success, you can reduce tenant delinquencies over the long term.
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Contact Link LeGrand, CCIM via email @ email@example.com or call 210-789-5465
How to Avoid Sky-High Delinquency Rates