Subleasing: An Affordable Option for Startups

You have an amazing idea and are ready to start up your own business, or perhaps you are just tired of working for someone else and want to start your own company. Either way you WILL require a dedicated location to house your future company or business. Due to the current economic conditions, many companies have put unused office space on the market for sublease. The amount of sublease space that is available in most major markets around the country is quite large. The benefits of subleasing office space for startups and emerging companies far outweigh the disadvantages.

One of the biggest advantages is cash flow. A sublease gives you a physical headquarters and gives off a professional vibe to potential customers without putting an irreversible dent into your wallet. Subleases are almost always going to be a less expensive option than a direct lease with a landlord. When you take a look at todays soft market while keeping in mind the substantial sublease inventory available, the cost savings can be very significant. Until your business begins generating substantial profit, subleasing is an easy way to regulate your money and not overspend on something you would regret if you have budget issues/constraints down the road.

More money in your pocket means availability of cash to use in other portions of your business to ensure its quick success.

By going down the sublease route as opposed to entering a contract with a landlord you are also guaranteed flexibility in the lease terms. With a landlord you would be bound by a typical 5-year contract, and if you pushed negotiations and pleaded your case, chances are you would still have to sign a 3-year contract. As an up and coming business it is good to be confident; however, there is a fine line between confidence and too much risk. As an emerging business/company, you want to avoid being tied down by terms and conditions with your landlord. You will be required to keep paying the agreed sum until your contract expires, however in the case of subleases, you can get a much shorter lease term in order to do a “test run,” so to speak. Better safe than sorry.

Another challenge for new businesses and young companies with a short operating history is the security deposit required by the Landlord in a direct lease. A company with a proven operating history and good credit will only be required to provide one month base rent as a security deposit, or in the case of the most credit-worthy tenants, no security is required.

However, this is rarely the case for startups. Buildings owners are likely to require personal guarantees, a significant letter of credit to be pledged, or as much as one year of rent as security deposit to take the risk on a startup as a tenant.

In a sublease situation, the Landlord is motivated to keep rent coming in and is more willing to take a risk on the startup tenant, so the security deposit required can be significantly less than usual.

It’s easy to see why subleasing is a safer route for any emerging company or budding business. Not only is it easier on credit examination, but also on security deposit, duration of the lease, and cost.