What Happens when Your Business Can’t Pay Rent?

Other Avenues for Financial Assistance When In Financial Crisis

Loans

A business owner may opt for loans to solve their financial situations and be able to pay business rent. You can even use your logbook as collateral when applying for a loan. Some of the common loans are bank loans and loans for Small and Medium Enterprises (SMEs) usually provided by governments to upcoming or struggling business owners.

E-commerce as the way forward

A business owner may choose to go digital in its business operations to avoid using a physical storefront. This in turn will help save on rental expenses when in financial strain. Being digital may also help cut some expenses like electricity, air conditioning, and staff reduction.

Work-from-home

Employers may consider assigning employees to work to accomplish while at home and in such situations, save finances of daily operations like coffee & snack expenses, parking lot fees, transportation refunds. The money saved can go a long way in reducing the rental cost, even to a small extent.

Consider factoring

This is where a company sells its receivables at a discount to get cash up-front.

Credit cards

It is a risky business and should be a last resort. However, a credit card can be used responsibly to get you out of the financial problems and, in turn, allows you the opportunity to use the little cash at your disposal to settle rental payments with your landlord.

Pledge some of your future earnings

An ambitious business owner may offer up a percentage of their future lifetime earnings in exchange for upfront, undesignated venture funding.

Do mergers and space sharing

Look for avenues in which you can merge your business with another, or lease out that extra space like a spare room or parking lot and have the opportunity to share rental cost.

Try crowdfunding

This is where you put out your best idea to the scrutiny of the crowd. If they like your idea, they assist in funding your idea. It is typically used to facilitate the asking or and giving o support for single, one-off ideas. Usually, project-creators offer incentives for pledging in the form of rewards such as gifts or early access to products and services.

Use your ‘rainy season’ savings

Most businesses, if not all, usually have savings that they intend to use when the going gets tough. What situation can be tougher than an eminent eviction for your business? Thus, this is the perfect time to use those savings to save your business.

Temporary deferment of government-related debts

As a business owner having rental problems, you can take advantage of the crisis and defer payments like profit tax (but first confirm how the government is likely to react to that) and student loans for a later date.

Government relief

Find out available government reliefs that can help sort out your rental problems directly or indirectly through relieving you on other expenses whose funds you can then direct to the rental payment.

Government’s Contribution to Alleviating Business Rental Problems

Governments have introduced financing support, tax, and other temporary relief measures intended to help businesses survive the dramatic short term effects of crisis like that of the corona virus, which has hit the whole world.

Some of the government measures include providing financing support in the form of the SME Financing Guarantee Scheme, the Employment Support Scheme, as well as introducing a reduction in profit tax, income tax, property tax, specific industries subsidies among others.

The government also waives off some charges to benefit the business industry.

Working out a payment plan with your landlord

Tenants can seek advice or professionals like lawyers on how to go about rental payment problems and available payment plan possibilities.

You can work out your payment plan with your landlord by renegotiating your leases. Other reasonable landlords may accept this instead of losing out on the rent altogether. It is a win-win situation as your business is also not faring well during the crisis.

Tenants could ask the landlord for monthly rental payments instead of quarterly; for a moratorium on rental payments or 3-6 months; for a reduction in rent, for rent to be permanently or temporarily converted to a turnover-only basis; or that the rent is reduced by 50% to share the pain equally.

The landlord and tenant can strike out a plan to benefit each other by promoting each other’s cause. For example, a landlord can commit to use the products of his/her tenants or direct his customers to the tenant’s business. This helps the tenant not to go out of business. When the business booms, the landlord has his rent in time as arranged.

Landlords can also engage in regular rent reviews with short intervals with the business tenant in order to adjust rental fees with respect to the tenant’s financial situation.

Other rental payment plans may be paid by installments or granting rent-free periods.

Summary

Tenants and landlords should work out their payment plans having in mind that rent is one of the major operating costs for retailers, and at the same time, rent is the primary source of income for many landlords.

Force majeure clauses that permit termination or closure and stipulate the suspension of rent payments should be included in all business premises leases.