Financials Needed for Commercial Tenants/Guarantor
What do landlords look for in financials for a commercial tenant &amp; guarantor? Is there a ratio based on the monthly or annual rent that you look at?
[{"id": "gsuzk6p", "text": "For commercial lending we look for the guarantor to be able cover the mortgage 1.2-1.3x with their free cash flow. That can be a start but you also want to see their retained earnings / cash on hand and trend over a couple years.", "replies": [{"id": "gsvn7gk", "text": "I think they're asking about a lease guarantor rather than a loan guarantor.", "replies": [{"id": "gsvntj3", "text": "I know but same principals", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gsv16ct", "text": "Total assets that are not bk proof. History of rent payments for the business. 2-3 years.", "replies": [], "depth": 1}, {"id": "gsv5cww", "text": "I look for 12mo rent in cash availability PLUS a payment history from the business. Also always get either corporate or personal guarantees depending on structure etc.", "replies": [], "depth": 1}, {"id": "gsviyb8", "text": "I just look at the length the business has been open.  I don't ask for financials. Either way, you're going to sign a personal guarantee so it doesn't matter to me.", "replies": [{"id": "gsxe5dc", "text": "Who is doing to sign a personal guarantee for a national corporate chain?", "replies": [{"id": "gszd3v0", "text": "Sure, no personal guarantee for Walmart but seems reasonable to assume OP isn\u2019t talking about a Corp chain.", "replies": [], "depth": 3}, {"id": "gszndp0", "text": "If it's a national corporate chain, why do you care about their financials?  They're probably better than yours!  If it's a franchise, then you make the franchise owner sign the guarantee.", "replies": [{"id": "gszo6uf", "text": "The entity that is signing the lease, and entities, if any, that are guaranteeing the lease, are most likely not the all up national corporate chain parent company. The purpose of having subsidiary entities is to limit the parent entity's liability for the subsidiary entity's debts. So if they have a local or state level subsidiary and those operations go bust, who is going to be left holding the bag?", "replies": [{"id": "gszpqbq", "text": "The likelihood and risk of this happening is very small.  If so, you can sue them and recover some of your losses - most collection attorneys will work pro-bono even, for 30% or so.  You would even have a place in line if they went bk.  I have an office complex with a regional/large company in 20% of it and I have no worries.  If they breached the lease, I would sue and lease it back out asap.  The risk is so small...", "replies": [{"id": "gszr742", "text": "The risk profile is very different for office versus retail.", "replies": [{"id": "gt3rfcn", "text": "I'll give you that - that's very true.  I guess you could have the main entity sign the guarantee?  You wont get a personal one, but you can go after the main/bigger entity.", "replies": [{"id": "gt3vydh", "text": "You're more likely to get a subsidiary of the main entity signing the guarantee... and then you need to evaluate how much of the main entity's business does that subsidiary represent, their financial health, etc.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gswuz3i", "text": "The only ratios that come into play is rent as a percent of revenue. For a restaurant with a 6% rent benchmark they would need to do $1,000,000/ year revenue to cover $60,000/year rent. \n\nWhen the landlord is considering non rated tenant they\u2019re going to ask for 2-3 years of tax returns, a balance sheet/personal financial statement and maybe even 90 days worth of bank statements. To prove cash on hand.", "replies": [], "depth": 1}, {"id": "gsx861v", "text": "It depends on how much TI dollars are being put in by the landlord.  If the tenant is taking the space \"as is\" and there the commission is low,  I would be a lot more relaxed on what I look at.  If there are a lot of TI and a large commission,  I look at bank statements, tax records and rental history.", "replies": [], "depth": 1}, {"id": "gsxp49r", "text": "What would you say to a commercial tenant who doesn't want to provide financials or a personal guarantee but is willing to prepay one year of rent, sign a 10 year lease (leasee is a C corp/restaurant in operation for 20 yrs), and show proof of the $250k they intend to spend on improvements to the space?", "replies": [{"id": "gsyls5t", "text": "*\"Thanks for playing\".*", "replies": [], "depth": 2}], "depth": 1}]