I have a letter of intent for a commercial space I own from a person interested in starting a new business. It has been a long time since I have dealt with a new business for a background check we are currently requesting:
2 years personal taxes
2-4 months bank statements
Credit check on the individual
Sit down meeting to feel the person out for their business sense.
Any suggestions for other things to request above and beyond these items.
Also, this person is asking for a 5 year term. Nothing I love more than paying a commercial commission on a 5 year term only to have the business fail after 2 years. Any suggestions on this? Structure some sort of personal guarantee with security that should he fail to fulfill the term of the lease the commission payable back to me on a pro-rata basis?
Mark - I think the items you requested above are spot on. I have vetted many tenants using similar documents. In addition to the bank statements you may also want a balance sheet depicting their net worth - all assets and liabilities. Also, their business plan should include a pro forma financial statement that accurately reflects their occupancy costs and shows positive cash flow. If they plan on negative cash flow in the first year or two - do they have sufficient reserves?
Regarding the commission ... most brokers will not offer to reimburse you if the tenant goes belly up before the term is up. If you have significant doubts and their potential failure will put you in a real bind, you may want to pass on the deal. Or, like you suggested - obtain a personal guarantee or have them put up a big security deposit. You could offer to reduce the amount of the deposit on each anniversary of the commencement date. If you offer an early termination option, make sure to include a fee that will allow you to recoup your un-amortized TIs and commissions. Good luck!
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