What size must my small business grow to in order to avoid a personal guarantee on a commercial lease agreement?
Do regional chains have to do this
[{"id": "hpdwlhf", "text": "It\u2019s negotiable, but I\u2019ve seen personal guarantees required from companies with 20+ locations.", "replies": [], "depth": 1}, {"id": "hpdy2sv", "text": "Case by case but the historical business balance sheet and income statements need to support the lease. You\u2019ll do better with mom and pop LLs or small firms than the big nationals.", "replies": [], "depth": 1}, {"id": "hpef81j", "text": "It depends on the landlord. I rep small mom and pop landlords and some larger ones and each of them is different. Typically, if you have a lease drafted in your company name, they will require a personal guarantee or you may be able to get away from one if you agree to having a larger deposit on file.", "replies": [{"id": "hpfi27t", "text": "Yep. If it\u2019s a situation where normally you\u2019d expect a PG, we either bank future rent payments (better than a deposit) or larger deposit. Something like 4months of future rent was enough for a 100k sq ft warehouse in a very competitive market.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hpeln99", "text": "It depends on circumstances. More cash in the game and you don't have to sign.", "replies": [], "depth": 1}, {"id": "hpeugjb", "text": "I\u2019ve seen very large retailers guarantee their leases with a corporate guaranty. The tenant who signed the lease was a LLC (like Target store #123, LLC) then Target\u2019s main corporate entity guaranteed all payments. Sometime this is done to protect them from lawsuits or for tax and accounting purposes.", "replies": [], "depth": 1}, {"id": "hpevrb8", "text": "Proving you don't need the loan by putting 50% down?\n\nEven Walgreens has corporate guarantees on their properties", "replies": [], "depth": 1}, {"id": "hpf2rgh", "text": "For me the quality of the financials depends on two things, capital and alternatives. The less capital I\u2019m putting into a deal the less critical I am of the financials.   Likewise the fewer options I have for a space the more I try to make a prospects financials work.   If I\u2019m doing an \u201cAs-Is\u201d deal on a space with no other options, my only real risk is downtime in the future (but rejecting the deal means more downtime in the present).   If I have more alternatives for the space I will leverage those options to cover the exposure to future downtime risk with a stronger guarantee.", "replies": [], "depth": 1}, {"id": "hpf48zo", "text": "I was lender shopping last year and was able to find non-recourse loans for around 40% down. They definitely exist, but in this case the LTV was too low for me to choose it over the alternatives.", "replies": [], "depth": 1}, {"id": "hpf4t3j", "text": "No absolutes, providing a personal guarantee is totally deal-dependent. Credit tenants or regional chains may use a bankruptcy remote entity. If most of your options for space are asking for a personal guarantee you may want to focus on exclusions and when this liability can burn-off. In other words, situations where you don't have to use personal assets to backstop your business lease and/or reducing the maximum liability over time - possibly to zero.", "replies": [], "depth": 1}, {"id": "hpf6c72", "text": "My company typically doesn't require them for national credit tenants or publicly traded companies.", "replies": [], "depth": 1}, {"id": "hpfacjt", "text": "as a landlord, I try to always require them unless it's a national but you can probably negotiate down to a good guy guarantee.", "replies": [{"id": "hpfd6fi", "text": "I'm also much more likely to do a GG or floating if I don't need to provide any TI money or fit out.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hpfkb2l", "text": "Meaning do you want to provide a corporate guarantee instead?\n\nAs a commercial real estate lender we want to see corporate guarantees from all companies associated with a credit rated company.", "replies": [{"id": "hpjuztz", "text": "Yes, that would be preferred. What is a corporate guarantee?", "replies": [{"id": "hpjz9lk", "text": "The entity that holds all of your business entities guaranties the lease rather than you personally.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hpg58ch", "text": "In my case, I was able to avoid giving personal guarantees by giving a bigger cashdown (2 times the minimum)\n\nI live in Canada though", "replies": [], "depth": 1}, {"id": "hplvwq0", "text": "Offer up an LOC instead worth a few months gross rent plus any TI and free rent. Then ask that the LOC burn down to some minimum amount (like 1 months rent) over the term.\n\nLandlord isn\u2019t out to take your grandmother\u2019s ring, they just want to make sure their investment in you is protected.", "replies": [], "depth": 1}]