January 24, 2023 | Last Updated on: May 22, 2023
The United States economy is just coming out of a rough few years of economic turmoil related to the COVID-19 pandemic. The response to coronavirus was varied and unpredictable. Businesses, especially small businesses, found it difficult to know when they could and could not open to the public, how many employees they could have working at one time, and what regulations or liabilities they were open to. Businesses suffered with decreased revenues, even though they were still obligated to pay their bills and costs.
One particularly difficult expense for businesses was making their rent payment. For some small businesses, this can be their biggest expense. The lessons learned about missed rent payments during the pandemic have begun to provide lessons for how landlords and small businesses can work together when a rent payment is late.
When a small business cannot pay its rent by the due date or is anticipating problems with future rent payments, small business owners can be subject to stress and anxiety over the future of their business. Fears over late fees, potential eviction, or what grace period they might be able to negotiate can permeate into their everyday life. These can be difficult to sort through, especially at the moment as you navigate financial issues and the concerns of missing your payment.
In this article, we’ll go over what will happen when you miss a rent payment and some strategies you can utilize in order to minimize the impact. In this article, in particular, we will focus on the following key points:
In all, sometimes being late on a rent payment is completely unavoidable. By the time you have come to the decision to start researching the consequences of being late on your rent payment, you may already be sure that you will not make a particular month’s payment. Now is not the time to panic. Even if you cannot correctly maneuver your way to making a full payment on time, you can still take steps to better your small business’ position.
A small business owner might not just be concerned with the financial consequences of not being able to pay rent on time but also about the relationship they may have with the landlord. In areas where real estate is in high demand, small businesses might be worried about the terms of the lease and the logistical implications of past-due rent or nonpayment.
Some small business owners reach a level of desperation so high in trying to get their rental payment in on time that they go into personal credit card debt to do so.
Many landlords can have a hard time figuring out what to do if tenants are late on payments. Sometimes, landlords have commercial loans on the rental property that they develop and manage. Landlords need to pay those loans and expenses.
If a landlord starts evicting many of their tenants, then they may not have enough money to cover their own mortgage payments or other loan obligations. This might incentivize landlords to work with their tenants to find a mutually agreeable solution-whether that is for tenants to pay a portion of their revenue or to pay what they can until a later date. In any case, though, this may only be valid where several small business tenants are experiencing financial difficulties at the same time.
Although, small business owners might be able to relax slightly when considering the motivations and incentives of the other party involved. Similar to a small business, landlords also have to worry about their income and costs. This might provide some flexibility to small business owners in the event that they are behind on rent. There are options for you to speak with your landlord and see about how you might be able to work out a deal in the interim of experiencing financial challenges with your small business.
If your small business is experiencing financial difficulties uniquely, then your landlord might not face the same incentives to provide as large of a break to you. Nonetheless, you might still consider engaging them in a conversation to see what your options are and investigate options surrounding a late rent payment. You can prepare for a conversation with your landlord about their options if the landlord has multiple struggling small business tenants by reading about past solutions with the pandemic.
You might reflect on the challenges facing your small business right now. If the reasons for these challenges are external or if your small business is in the middle of a crisis or natural disaster, you should check your rental agreement to see if there are any provisions protecting you. You can also read how people have recently dealt with rent challenges not caused by internal business factors.
In general, if you are late on a small business rent payment, several consequences are possible. There are late fees, eviction, and credit issues. There are a lot of factors that play into what consequences might occur. Most consequences are the result of the landlord’s consideration of the circumstances of your rental agreement and your prior payment and tenant behavior. You may be able to leverage an existing relationship or previous positive record to lessen the impact of being late on your small business rent payment.
It is important to check your rental agreement for the specifics regarding the eviction process and what the process is if you are late on rent for your small businesses. Some rental agreements contain a grace period. This allows you the flexibility to pay your rent in full with smaller penalties a few days after the day of the month when your rent is due. However, the exact case will vary depending on the rental agreement. Commercial leases can be a complicated matter. In any case, discussing your circumstances with your landlord can help increase clarity in the process on both sides.
If you are late on your rent for your small business, there could be serious consequences. Logically, the largest and most serious concern for your small business could be eviction from the location it is currently located at.
This could have a wide variety of repercussions. Customers who are used to shopping at your location may not be aware it has moved. The time from notice to eviction could also be insufficient to notify all of your customers that your location has moved. A move in your small business location could create a wide variety of problems, especially logistical in having to move any business items located at your previous location to your new location. This creates additional costs, as it will require more employee time and resources. Not to mention, there is a risk that a move in your small business location could cause employees to reconsider their employment. If the commute is too long for them, they might seek other employment and leave your small business. In any case, having to move the location of your small business is a risk with substantial costs. Avoiding this is not only easier but less risky and potentially less costly.
If you receive a notice for eviction, it is time to gather your items at your business and take them away from your previous location. The notice to evict your small business will not give you much time, so it is important to work quickly. Another reason to be speedy with this is to avoid extra fines and legal or logistical challenges if you are late on leaving after a notice to terminate your lease agreement.
If you are usually on time with your small business rent payment and have a good relationship with your landlord, your landlord may grant you a break and forgive you a late fee on a payment. This, however, should be a proactive conversation initiated by the small business. This could give you the opportunity to show that you have unpredicted circumstances which temporarily caused a problem in getting in your rent payment on time.
Even if you expect to miss a rent payment or have other troubling financial conditions or circumstances, you might still have leverage on your side in a conversation about reconciling the late rent payments. The landlord is likely interested in getting a stable tenant back on track to avoid having to get a new tenant or a lapse in revenue.
First, if you are worried you are going to be late on your small business rent payment, you should understand when your payment would be considered late. A good first step would be checking the rental agreement to identify when your rent is due. For most, this will be the first of the month. This means that any day past the first day of a month means the rent payment is considered late. Another advantage of checking the rental agreement could be acquiring peace of mind about the potential consequences your small business will face. These range from fees for being late on the payment to eviction.
The exact details of this process may be influenced by state laws or temporary government policies, such as eviction moratoriums. Thus, it might benefit you to seek outside information from your rental agreement to see your options, from current government policies to legal advice depending on the situation.
One step a landlord might take if you are late on your small business rent payment would be to charge a late fee. A late fee is when you pay your rent past the date it is due. A full detailed layout of potential late fees should be in your rental agreement, and this is a great source of information for understanding the potential consequences of being late on a payment.
However, it is repeatedly recommended that you contact your landlord and discuss your situation with them. That is because late fees are not automatic in every case. Landlords are able to dismiss the late fee and decide not to charge it. It is possible that your being proactive and apologetic to the landlord will be enough for the landlord to waive your late fee for being late on your small business rent payment.
It is important not to rely solely on your rental agreement or landlord for help in the event that you are late on your small business rent payment. Landlords may knowingly or unknowingly withhold information on your rights as a renter. These rights can be regulated by the state government under which your small business operates and is located or the federal government.
One of the consequences of being late on your small business rent payments could be with your credit. Consistently being too late on your small business rent payments could cause a landlord to report a tenant for being late on payments. These reports would be sent to a credit bureau and could affect credit and future renting prospects.
One of the advantages you have as the owner or manager of a small business is the benefit of information. You have the clearest insight into the financial health operations of the business. You know when you are going to be able to make a rent payment and when there might be challenges. Landlords, on the other hand, do not have the benefit of information. Landlords expect to be paid every month when the rent is due. However, this does not always happen. Sometimes, landlords can be surprised that one or more of their tenants missed a rent payment.
For landlords, this is problematic because they have different types of bills to pay and possibly even mortgages on the commercial property they own. As such, they are interested to know what arrangements they can make ahead of time to pay their bills if they have any surprises in overall income.
With the logic from this situation, it would make sense that if a small business owner or manager was going to be late on their small business rent payment, they would notify the landlord as soon as possible. Of course, this is a kind move and a mature decision to make. A conversation about this is not easy. It also has the opportunity to reflect poorly on the management of the small business, as some landlords might perceive the tenant as worse off once they know that the small business is unable to make a rent payment in full.
This perception should not stay with you, however. In either case, the rental payment for your small business would be late. It is much more likely that the landlord would perceive this advance notice as a sign of a tenant who is interested in doing everything they can to rectify the situation. It shows that the tenant cares and understands the position of the landlord in such a situation.
Doing so may cause the landlord to forgive a late fee or be less harsh in response to a late payment. Additionally, this would be a lot better than a landlord being upset with a payment which surprisingly late. That reflects poorly on a tenant for not informing the landlord of what was about to happen.
One of the next steps in that conversation and notice is to try to provide examples of how you can accommodate the situation to the best of your ability. This might be trying to find a way to pay as much of the payment as you are able to by the rent due date and paying the rest at a later date. In many cases, this will be specific to your small business and your financial situation at the time of trying to reconcile the late payment. One of the best ways to start this process is by thinking of how you can provide the fullest payment to the landlord as soon as possible. With this in mind, you may be able to come up with interim solutions that can help maintain your rental lease and lower other costs associated with being late on your small business rent payment.
While you might be able to harness the help of a landlord when times get tough for your small business, it is best not to count on their goodwill on a consistent basis. In other words, do not become late on your small business rent payments on a regular basis. Doing so will create a bad perception of you to the landlord. It may push them to prefer tenants who are not consistently late on rental payments. Moreover, landlords may begin to question the overall stability and financial health of your small business. This, in turn, creates a worse perception of you as a tenant and increases their perceptive liability in continuing to accommodate your late rental payments.
As mentioned before, one great option to offer your landlord as part of your advance notice would be that you could pay a partial amount of the monthly rent for your small business. You should try to pay as much as you can to the amount that you owe. This is due to a variety of reasons.
First, from your rental agreement, you have a legal obligation to pay the landlord all the money you owe in rent.
Second, your rental agreement could include a late fee clause corresponding to a percentage fee based on the amount of outstanding rent payment. That means that in the event that a landlord charges you a late fee, you will end up paying less. This could make your recovery from a late small business rent payment cheaper.
Third, your willingness to pay as close to the money you owe as possible shows your commitment to making the best of your financial situation to your rental agreement with the landlord. This may increase the landlord’s positive perception of your small business and its efforts.
Once you have given your landlord advance notice and are ready to have a discussion with them about it, it is possible that the landlord will be concerned about the long-term financial stability of your small business and its capacity to make rent payments in the future. One other thing you could offer them is to make payment installments weekly instead of monthly. That could add to the stability of the landlord’s cash flows and peace of mind by knowing that the money will continue to be paid toward the full rent.
There are several strategies that can be used to make the conversation with your landlord about being late on your small business rent payment easier. In any case, it is best if you are honest, proactive, and thoughtful in your approach to rectifying the situation.
Biz2Credit is a leading supporter of small business owners and companies across the nation. As part of this, we maintain our Biz2Credit Blog to help keep small business owners informed and up to date on the latest news and trends impacting them. So, please continue to check back here each day for the latest posts and articles on everything small business related.
