Credit Analysis
The process of evaluating a prospective tenant's financial health and ability to pay rent consistently throughout their lease term.
Definition
Credit analysis for small bay industrial tenants involves reviewing financial indicators to assess whether a business can reliably meet its rent obligations. Unlike leasing to large corporations with audited financials, small bay tenants are often owner-operated businesses where the evaluation is more personal and practical. Key components include reviewing tax returns, bank statements, business credit reports (such as Dun & Bradstreet PAYDEX scores), and calculating whether real estate expenses fall within sustainable ranges—typically 5-8% of gross revenue. For small businesses without extensive financial documentation, operators may focus on bank statement analysis to verify consistent cash flow. As credit fraud becomes more sophisticated, some landlords are adopting bank account connection tools that verify financial data directly rather than relying on submitted documents.
Example
A plumbing contractor applies for a 2,500 SF unit at $15/SF NNN ($37,500/year total). The landlord reviews their tax returns showing $500,000 annual revenue—the lease would represent 7.5% of gross revenue, within the acceptable range. Bank statements confirm steady deposits, and a business credit check shows no delinquencies.