How to Rent a Small Business Space

You might be getting ready to launch your small business or find a new location for your existing business. You might be seeking an opportunity to expand and find a new location for your small business or simply to be more efficient with your costs. You might want to move closer to your customers or make your small business operate in a more efficient location. In any case, you might be exploring options for renting your next space for your small business.

Renting a space can be a complicated process. If done correctly, your small business can be poised for great success. However, if done wrong, your business will experience inefficiencies that can prevent it from being the most profitable possible. As a result, it is important to consider how to rent a small business space correctly if you should decide to rent at all. We’ll cover the following details in this article in depth:

• Why Should a Small Business Rent a Space?
• Why a Small Business Space is Important
• Consider your Business Needs
• Determine the Space You Need
• Find an Ideal Location
• Select Your Budget
• Find a Hypothetical Location for Your Small Business Space
• Speak with the Neighbors or Tenants of Your Building or Landlord
• Negotiate Your Lease
• Move In
• Takeaways

Why should a Small Business Rent Space?

A lot of small businesses will need a space to operate. It is rare that they would not need one. Whether your small business is a cafe, restaurant, farm, brewery, manufacturing plant, nail salon, or retail store, your small business needs a location to operate. Just about any small business that you might think of needs a space to be able to conduct their business.

Other small businesses, such as smaller startups or businesses run completely online, will not need a space at all. However, it is likely that your small business will need some sort of space to operate. Even these online businesses tend to operate out of homes. If your operation gets too big, you will need a space from which you can run your small business.

Now that you have considered whether you need a space, you can determine whether it is better to buy or rent your space. For some businesses, it may make sense to buy a commercial space rather than rent a commercial space.

Commercial real estate is expensive and takes up a lot of your capital. Generally, it is not a good idea to outright buy a commercial property for your business unless your specific situation warrants it. This essentially means that you would buy a space just in cash. Such a situation would be warranted if your small business has too much cash, for example, and spending that cash on a space would be the best use of cash for the small business. While only you can determine if this expense is the right one for your small business to take on, buying a space for your small business does not need to be funded completely upfront.

The advantage of purchasing a space outright is that you can avoid the interest charges of a loan, which would also be expensive. However, using a loan to purchase a space is another option available to your small business, but it will limit your business’s flexibility. Buying your own space will mean that you have to do maintenance on it and you will have less flexibility to move to a new space should your situation warrant it. Such a situation might be if your business starts to experience growth and grows out of your current location. You may have to either pay off the loan or sell the property to move locations. Either way, a loan creates obligations that your small business does not necessarily need in order to have its own space. Not to mention, once you own a space, you are obligated to pay property taxes on it. A loan might be just too much of a headache.

This is the logic of renting a space for your small business. With renting a space, you can have more financial flexibility in your lease, the length of your lease, and your commitment to one location. Renting is also a cheaper option for your small business. The option of renting is simpler in the obligations it puts on your business than using a loan. You do not have to worry about some of the same property maintenance issues.

Although, it is important to note that renting will leave you with fewer assets in the form of real estate. However, in many cases, renting makes the most amount of sense for your small business space.

Why a Small Business Space is Important

There are several reasons why you should consider renting a small business space. The main reason is that people need to conduct business in a space. Your small business will likely need a space to operate.

For retail stores, you need retail spaces to be able to accept shipments, stock, and sell your products to people in your local community. It is critical that business owners offer a venue for their customers to shop at. Having a storefront can help attract business and help build-out the business to its full potential within the community that your small business operates.

Similarly, you might need a commercial lease for your small business manufacturing plant, a storage unit for your farming equipment, or a place to park your truck for your small business. Having a space helps to facilitate the basic activities of these businesses. Choosing the right space can help your business access efficiencies that are previously unavailable to it.

For other businesses, such as software companies, having an office space can help the office conduct business. It can be a place to meet clients, coordinate and cooperate on work, or maintain productivity by being around one another. You can use an office space to create more cohesiveness in an office, especially on the heels of the COVID-19 pandemic.

While getting a space for your small business will raise your operating expenses, having a small business space is likely a smart way to increase sales, promote productivity, or increase operational efficiency. At some point, your small business might consider the need for a space or for a bigger space given its growth and needs to expand.

Consider Your Business Needs

At the most fundamental level, selecting a small business space should be based on the needs you anticipate your small business is having. This ultimately depends on the role that real estate will play in your business.

This means that if your goal of acquiring a space for your small business is to sell products to your customers on-site, you need to find somewhere which is accessible to your customers. You might want an appealing storefront, a comfortable store, and enough space to be able to sell your products to customers. This might be the same type of concern you would have if your intended business is a cafe or restaurant. You will need to have a good amount of parking. In general, the location should be convenient and comfortable. A central location might help, such as in a shopping center.

If your small business has more to do with manufacturing or sorting and shipping products, rather than a client-facing location, then your location may not be that important. Space might be a larger concern for you. You might be able to get a location far away from the city, but you still might want an option to access your location via public transportation, for example. You might consider a space with air conditioning, depending on the climate and the products which you are selling or storing.

Small business owners looking for an office space or a type of lease for a place for people to simply work with one another might be looking for someplace with plenty of parking in an urban location. Having a shared building with common areas and other businesses may be less of a concern. You might want to ensure that clients who will be visiting will have an easy time locating your building or do not need to travel far from where they are usually located.

There are a variety of different types of businesses which will determine the kind of space your small business needs. Once you have an idea about the type of business and type of space which your small business needs, you should consider what is important to you when it comes to leasing a commercial space. As you approach a lease agreement through the leasing process, you want to be sure that the property you select has all of the aspects that you need in a small business space.

Determine the Space You Need

Now that you have thought about the functions of the small business space you intend to rent, the next step is to outline and calculate how much space your small business will need. This is perhaps the most math-heavy part of the process, as you will need to understand the amount of square footage your small business needs. Of course, as you increase the number of square feet that your business is looking for, the monthly rent on the property you will lease will increase too. In any case, you should start this process by thinking about what your business needs before what your business is able to pay.

In any case, it is best to start by calculating the occupancy you expect to have. Whether talking about a restaurant, cafe, office space, or other types of a business location, you should be able to set the number of square feet you will need and multiply that by the number of people working for you or visiting your business. Setting a general multiplier of people times square feet may help, but this will depend on your business.

Not the least of which reason this may not work to completely estimate your small business’s space needs is due to the objects, inventory, or furniture that will need to be included in your calculation. If your business is a retail store with a large number of sales of clothes, for example, you may need to include a certain amount of clothing racks and clothes in your calculation. Moreover, if you are going to have furniture or a kitchen in your office, it may make sense to include that square footage as part of the calculation.

In any case, building out a complex calculation for your ideal small business space is a good start. It can give you a rough estimate of what type of space and how large your small business needs. This will soon help you compare your budget to your needs.

Yet, there is one more important aspect of calculating the space your small business needs. You should be aware that your small business might grow. In fact, your small business might have a fairly steady growth rate which would allow you to predict if your sales are going to increase or if you need to bring more employees on board. If this is the case, you may soon need more space than you are preparing to rent.

It is a good idea to leave room for growth in your small business. There are large costs involved in moving all of the assets of your small business from one location to another. If you are investing in that moving cost, you should be confident that your small business will fit well into its new space. Moreover, it should be one that your small business can grow into, so you can avoid future headaches.

Find an Ideal Location

Once you know the type of location and size of location your business is looking to rent, it should become easier to narrow down a location. Starting broadly with this, you might consider the city your small business space should be located in. This might be very easy if your business is already established within a community. However, if you have a new business and are looking to choose the right location, then considering which city is most ideal will help your profitability and ease of reaching your customers or facilitating shipping.

Once you have narrowed down your city, selecting a region of the city will be important. For some small businesses, such as bars, it might make sense to have a central location downtown. The same thing might go for an office. However, if your business does more manufacturing, farming, or non-client-facing work, a more suburban or rural location could work for your small business.

Other concerns, such as safety, prices, and where your customers live and shop should be a concern factored into selecting your small business space. You also want to make sure that your employees are able to commute to your small business easily so that you can maintain an efficiently functioning workforce.

Select Your Budget

As you get closer to becoming a renter for your small business space, it will be important to consider your budget. Your budget will, of course, influence what your small business can afford. Ultimately, this will affect your profitability. Different locations have different pros and cons for the operations of your small business. If you do not choose the right location, you may be sacrificing profitability.

Figuring out your budget is important as one of the last stages of figuring out what you are capable of in the renting process. You should determine how much your business can afford as a monthly payment. From there, you can figure out the rental rate your small business can afford. Remember also that when you go to rent a small business space, you will be paying a security deposit alongside rent expenses at the beginning of your lease.

Find a Hypothetical Location for Your Small Business Space

The next step in the process of renting a small business space is to locate a property that you can rent for your small business. You can start by going online and searching for spaces. While this might provide you with an idea of what spaces are available to you in your price range and criteria, it may be helpful to seek help from a commercial real estate broker.

A real estate broker can help guide you in the process of renting commercial real estate. Informing them of the space you need, the type of space you need, and the location you are looking for can help them guide you to the best space in a city for your small business space. A real estate broker might also help you understand certain details about the neighborhood in which you are renting, the issues surrounding a particular property, or the benefits of a location to your business over another.

Speak with the Neighbors or Tenants of Your Building or Landlord

Once you have selected a prospective property, it is time to do your due diligence. Due diligence is important to anticipate any potential problems you might have with the property, running a business in a given location, or difficulties with a landlord.

Making a list of questions that are important to you is a great first step in this process. Your questions might depend on your business. If the unit you are looking to rent is near other retail store locations, you might consider asking them how their business has been. The other stores might be able to give you details on the traffic of customers to your stores as well as their experience in the local market your business is operating in.

Talking to tenants might also include safety concerns. You may want to be relatively sure of the security of the site of your business and the inventory of your business in a given location. Talking to other tenants might be a great place to start to gauge how they have experienced the local security situation relating to their businesses.

For questions about your landlord, you might be curious about how lenient they are. If you have issues with paying your rent in the future, you might be concerned about how landlords handle those situations and what accommodations they might make to tenants. Additionally, if you have maintenance issues, you might be curious about how helpful the landlord is in those scenarios and their response times.

If you are renting a building or unit in a shopping center that is shared by other businesses, speaking to those tenants would be a great start to asking these questions. If your commercial space is a standalone building, then you might try to find buildings rented from the same landlord and ask their tenants.

Negotiate Your Lease

If you have gotten positive feedback from tenants and neighbors of the building you are intending on renting, you might be ready to sign the lease. However, you might not want to do this straight away. Being that a commercial lease often involves a large amount of money, and there can be fewer competitors in the market, you may have some negotiating power.

Using that negotiating power might help you get better terms on your lease agreement. You might be able to lower the base rent, rental rate, or other aspects of your lease agreement. While your prospective landlord may have limits in terms of what they can offer on a lease, you should still consider asking them for more favorable terms for your small business. Your real estate broker should be able to help you through this process and ultimately guide you to signing the lease.

If you are in a competitive market for the real estate you are going to rent, spending too much time negotiating or asking for concessions may damage your position in trying to rent a specific small business space. Understanding the competitive environment when negotiating your lease is important, as it can lead you to negotiate from an advantageous position or let you know it is time to sign a lease on the terms at which it is offered.

Move In

Your leasing agreement will provide you with information on when your small business can move into the space you will be renting. Once you are cleared to do so by the agreement, you will be able to begin moving your inventory, equipment, furniture, electronics, and more into your new space.

Getting a new space for your small business is exciting. It can help you by leading to new opportunities for your small business or reducing costs where necessary. You might be able to improve your standing with existing customers or gain new customers in a different community.

Renting a small business space has its plusses and minuses, and judging this decision will have to be based on a case-by-case basis. Keep in mind that moving your space has a lot of costs involved in transitioning your business from one location to another. These costs are not just immediately financial, but they are also contained in customers getting confused with a new location or employees being unwilling to commute to a new location.

If the small business you are renting a space for is new, it would be wise to capitalize on your new location. It will become the first home of your new business. Your customers, clients, or employees will come to know this location as the home of your small business. You will start to build a community out of this space, so it is important to bring a vision of expansion, business, and success alongside your new space.

Takeaways

If you have never rented a spot for your small business before, the process can be a little confusing and daunting. However, with the right approach and methodology, you can make sure you get a location that is great. As always, it comes down to being diligent and making sure that you do your research. Confirming that the location is solid for bringing in customers, that the terms of the lease are good, and that you know exactly what you are agreeing to by signing the dotted line are all things you should consider carefully.

If you can successfully manage all of the things we outlined in this article, then you can be well on your way to finding a great location and rental opportunity for your business. So, good luck hunting for that perfect spot!

Biz2Credit

At Biz2Credit, we take pride in being a leading supporter of small businesses and their owners. As part of our mission, we strive each day to provide small business owners with the tools and resources they need to succeed in both the short-term and the long-term. One of these resources is our Biz2Credit Blog, which we update with new content every weekday. So, please continue to check back here for all the latest articles and information we have to offer our dedicated readers!

FAQs

Can you run a small business from a rental property?

Although your self-employment tax rate remains unchanged, based on your 1099 earnings, your federal and state income tax rates may be affected. This could lead to a higher tax liability at year-end, even if you have made the appropriate estimated quarterly tax payments.

What to know before renting a commercial space?

Things to consider while renting a commercial space are knowing your neighbors, preparing a plan of escape, checking all the clauses, and leaving the room for sub-sealing. You should also stay future-oriented, consult the professionals, and never try to rush the whole procedure. 

How much is rent in NYC for business?

The average rental price for office space in Midtown New York City is just under $86 per square foot.

Can I write off rent for my small business?

Rent paid for a business is generally deductible in the year it is paid. However, if the rent is paid in advance, the company can only deduct the portion that applies to the current tax year. The remaining amount can be deducted over the period it covers.

Does rental income count as business income?

QBI (Qualified Business Income) in real estate can be complex, so it's important for investors to consult a licensed professional to fully understand the rules and requirements. In many cases, rental income qualifies as business income, as long as the IRS guidelines are followed.

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