Much like with rental apartments, landlords ask for security deposits to make sure you can actually afford your lease and to incent you to leave the space “broom clean” when you leave. If things go wrong, e.g. a tenant files for bankruptcy, the deposit is used by the landlord to offset their losses.
What no one tells you: The security deposit is a pittance compared to what the landlord actually stands to lose if you go bankrupt (just compare your termination fee – which they are unlikely to receive in a bankruptcy – to your security deposit). So, if you want to minimize your security deposit, educate your landlord about your business as if they were your bank (because they kind of are) . Unless you have shaky credit, the security deposit should only be a month or two. Importantly, if you put up a multi-month deposit, it should be reduced yearly as long as you do not default. For a seven-year lease, ask for a “burn-off” of 20% per year for five years. Also, do not hesitate to tie the return of the deposit to your financial performance. For example, say to the landlord, “we are not there yet, but if we hit $10 million in sales and $1 million in cash flow, we get the deposit back”. It’s a win-win, the landlord just wants to know you can pay your rent.