Financing a Commercial Lease Deposit and Buildout
How to finance security deposits, first month rent, and buildout costs when signing a new commercial lease.
The Commercial Lease Capital Challenge
Signing a commercial lease requires significant upfront capital before you generate any revenue from the new space. Security deposits, first and last month rent, and buildout costs can easily total $50,000-$250,000 or more. Many businesses need financing to cover these move-in costs without depleting operating capital.
Planning your financing before lease negotiations strengthens your position and ensures you can execute once you sign.
Typical Move-In Costs
Commercial lease move-in typically requires:
| Cost Category | Typical Range | Notes |
|---|---|---|
| Security deposit | 1-3 months rent | May be negotiable |
| First month rent | 1 month | Due at signing |
| Last month rent | 1 month | Sometimes required |
| Broker commission | 4-6% annual rent | Tenant or landlord paid |
| Legal fees | $2,000-$10,000 | Lease review |
| Buildout costs | $30-$150/sq ft | Varies dramatically |
| Moving expenses | $5,000-$25,000 | Physical move |
Financing Options for Lease Costs
Several financing products cover lease-related expenses:
- SBA 7(a) Loan - Comprehensive financing covering deposits, buildout, equipment, and working capital.
- Term Loan - Lump sum for defined costs. Faster than SBA.
- Business Line of Credit - Flexible draw for various expenses. Good for phased buildouts.
- Landlord Financing - Landlord covers buildout, added to rent. Effectively a loan from landlord.
- Equipment Financing - Separate financing for fixtures, furniture, and equipment.
Landlord Tenant Improvements
Negotiating TI (tenant improvement) allowances reduces your financing needs:
- TI is money the landlord provides for buildout
- Typically calculated per square foot
- Higher TI in exchange for longer lease or higher rent
- Amortized into rent payments over lease term
- Reduces your cash outlay and financing requirements
Even when landlords say TI is not available, it is negotiable. Everything in commercial real estate is negotiable. A $40/sq ft TI allowance on 3,000 sq ft reduces your financing need by $120,000.
Security Deposit Alternatives
Large security deposits tie up capital. Consider alternatives:
- Negotiate lower deposit with personal guarantee
- Offer additional months prepaid rent instead
- Propose deposit reduction after 12-24 months of timely payments
- Consider standby letter of credit (frees up cash)
- Negotiate step-down deposit schedule
Example: Office Lease Move-In
Business profile: Growing professional services firm, 5,000 sq ft office, $25/sq ft annual rent.
| Cost | Amount |
|---|---|
| Security deposit (2 months) | $20,833 |
| First month rent | $10,417 |
| Buildout ($40/sq ft) | $200,000 |
| Less: TI allowance ($35/sq ft) | ($175,000) |
| Furniture and equipment | $50,000 |
| Moving costs | $8,000 |
| Legal fees | $4,000 |
| Total cash needed | $118,250 |
| SBA loan (90%) | $106,425 |
| Owner equity | $11,825 |
Timing Your Financing
Coordinate financing with lease negotiations:
- Get pre-approved before serious lease negotiations
- Include financing contingency in letter of intent
- Allow 60-90 days for SBA financing
- Faster alternatives if timeline is compressed
- Do not sign lease without confirmed financing
Common Mistakes
Avoid these lease financing errors:
- Underestimating total move-in costs
- Signing lease before financing is confirmed
- Not negotiating TI allowances
- Insufficient working capital after move-in
- Ignoring rent escalations in long-term planning
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
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Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.