Why Commercial Landlords Review Tenant Financials

Written by Kenwood Management Team | Jan 15, 2026 9:23:55 PM

Many prospective commercial tenants in Washington, D.C., and Baltimore feel confused or even frustrated when commercial landlords request detailed business financials during the leasing process. From a tenant’s perspective, the request can feel intrusive, especially if the business is established or growing.

In reality, this requirement is a standard part of commercial real estate tenant screening across competitive urban markets like D.C. and Baltimore. Reviewing financials helps landlords understand whether a business can sustain its rent obligations and whether the lease structure supports long-term success for both parties. It also directly affects commercial lease financial requirements, including security deposits, guarantees, and lease terms.

For landlords operating in high-demand corridors throughout the D.C. and Baltimore metro area, this process protects a significant upfront investment. For tenants, it helps ensure they are leasing space that aligns with their financial capacity and growth plans.

What Commercial Landlords Are Actually Looking For in Your Financials

When a landlord reviews a tenant's financials, the goal is not to find reasons to deny a lease. The goal is to evaluate risk, sustainability, and overall fit, especially in markets where commercial rents are higher, and tenant improvements represent meaningful capital outlays.

Most landlords request two to three years of income statements, balance sheets, and sometimes tax returns. These documents help assess how a business will perform over the full lease term.

Commercial landlords typically evaluate:

Financial stability and cash flow consistency: Ensuring rent can be paid reliably, even during seasonal or economic slowdowns common in urban markets.
Business viability and growth trends: Revenue growth, margins, and consistency over time indicate whether a business can keep pace with rising operating costs.
Client concentration risk: Businesses dependent on a single client or contract present a higher risk if that relationship ends.
Debt levels and liquidity: Existing debt and available cash signal how resilient a business may be during market shifts.
Security and risk mitigation needs: Financial strength helps determine whether standard lease terms apply or if additional protections are required.

In one example reviewed by Kenwood Management, a national company reported over $1 billion in annual revenue. A closer review revealed expenses exceeding revenue due to aggressive expansion. A larger security deposit was required, which later protected the landlord when the tenant filed for bankruptcy.

Common Financial Red Flags That Can Affect Lease Approval

Tenant screening often uncovers financial risks that are not immediately obvious. These issues do not always prevent a lease, but they can influence approval conditions, particularly in Baltimore and D.C. submarkets where landlords carry higher upfront costs.

Common red flags include:

Flat or declining revenue compared to industry norms
High debt relative to available cash
Heavy reliance on a single customer or contract
Limited operating history, especially for startups
Underfunded liabilities, such as retirement or benefit plans

In one case, a financial review uncovered an underfunded retirement plan. The lease proceeded, but only after the tenant provided a larger security deposit to offset the risk.

How Financial Review Impacts Lease Terms

The outcome of tenant screening has a direct impact on how a commercial lease is structured. Strong financials can provide flexibility, while higher risk may require additional safeguards.

Financial review commonly affects:

Security deposit size: Deposits may exceed standard amounts when financial risk is higher.
Personal guarantees or letters of credit: Common when operating history is limited or margins are thin.
Negotiation leverage: Strong financials can lead to more favorable rent structures or concessions.
Rent affordability comparisons: Landlords assess whether the proposed rent aligns with current obligations.
Risk planning for economic changes: Market resilience matters in long-term lease approvals.

This process closely mirrors underwriting a business loan. Landlords invest significant capital upfront through tenant improvements and leasing commissions and rely on rent payments to recover those costs.

Typical Financial Documents Landlords May Request

Document	Why It Matters to Landlords
Income Statements (2–3 years)	Shows revenue trends and profitability
Balance Sheets	Reveals cash position, debt, and liabilities
Tax Returns	Confirms reported income and financial consistency
Accounts Receivable Reports	Indicates cash flow reliability
Business Plan (for startups)	Demonstrates viability and growth strategy
Personal Financial Statement	Supports guarantees when required

Frequently Asked Questions About Commercial Tenant Screening

What financials do landlords require for a commercial lease?

Most commercial landlords require two to three years of income statements, balance sheets, and, in some cases, tax returns. Startups may also be asked for business plans and personal financial statements.

Can startups lease commercial space in D.C. or Baltimore?

Yes. Startups can lease commercial space, but landlords may require additional security, such as higher deposits, personal guarantees, or letters of credit, due to limited operating history.

Why do commercial security deposits vary so widely?

Security deposits are based on financial risk, not a fixed standard. Businesses with strong financials may provide minimal deposits, while higher-risk tenants may be required to provide several months of rent.

Is tenant financial screening similar to applying for a loan?

Yes. Commercial real estate tenant screening is similar to loan underwriting because landlords make upfront investments and rely on rent payments to recover those costs over time.

Do strong financials help tenants negotiate better lease terms?

Absolutely. Strong financial documentation can improve negotiation leverage, leading to more favorable rent structures, concessions, or reduced security requirements.

Partner With Kenwood for Smarter Commercial Leasing Decisions

Reviewing financials is not about mistrust. It is about due diligence and alignment. Thoughtful commercial real estate tenant screening helps landlords match the right businesses with the right spaces while supporting long-term success.

If you want to better understand the financial review process or explore available commercial spaces in Washington, D.C. or Baltimore, our team is here to help.

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