What is a Commercial Lease Bond?
The Aussie Commercial Lease Bond replaces the security deposit required by the landlord which has been provided (until recently) to the tenant by financial institutions (mainly banks) on a secured basis i.e.
- For small to medium enterprises, a bank guarantee secured by cash held in a term deposit account.
- For larger enterprises & corporations, a bank guarantee from established lines of credit secured by company
assets
This approach by financial institutions means that:
- Cash or a portion of your existing line of credit is tied up, denying the business access to the funds as additional working capital.
- This secured approach impacts the businesses financials i.e., the transaction is said to be “on balance sheet”. Being “on balance
sheet” means that the businesses ability to further borrow is reduced by the amount guaranteed.
- An annual fee and interest is charged for bank guarantees.
