Published September 8, 2021
Tenant Paying Rent
Landlord lease approval ultimately depends on the tenant’s demonstration of their ability to pay rent on time.
Here are seven ways a tenant can show the landlord they can pay the rent:
- Consistent Cash Flow: Retailers with consistent cash flow month after month demonstrates stability and a reliable income stream.
- Low
debt to income and asset ratios: Debt divided the business’ total
assets will be reviewed by Landlords who want to see a low debt ratio.
Retailers having low balance credit lines will look favorable to the
landlord. Often commercial lending criteria includes the measurement of cash flow to debt often called the debt to service coverage ratio, or DSCR, which measures a tenant’s ability to generate adequate cash after paying debt obligations.
- Customer diversity:
Landlords like tenants who have a variety of customers and with a large
base of customers. For example, a local coffee shop with a limited menu
that relies heavily on its “regulars” for steady income raises red
flags for the landlord.
- High credit score: The owner of the
business with a score of 720 and above shows the owner can manage their
finances effectively and takes care of financial obligations.
- Strong
Leadership: The landlord can bring up concerns and communicate
effectively throughout the lease term if tenants have strong top level
management with a noticeable chain of command.
- Sufficient
Collateral: Retailers that own property, big ticket assets, or other
collateral means the landlord can recapture monies owed.
- Personal Guarantees: For small retailers, the landlord will require the owner personally guarantee the lease. Signing a personal guarantee makes the owner personally responsible for paying the rent even if the business fails.
