Self Storage Financing via SBA
SBA self storage loans minimum requirements:
- 10% down payment (which can be borrowed)
- Good credit (ideally mid 600’s or better)
- Solid “regular” job or consistent source of income
- Some type of experience to give a lender a level of comfort that you have what it takes for self storage ownership
- 10% down on ground up construction or expansion
SBA self storage loans are primarily used by borrowers to get into the self storage business with the smallest down payment possible.
In fact, SBA loans in general are all about leverage. It is one of the main reasons SBA loans exist. In fact, in the case of self storage, SBA loans can be a shockingly good value, although like all loans they are not perfect.
SBA Self Storage Loans: Guidelines, Positives & Negatives:
- Ten percent down whether you are buying or building and this can be borrowed as long as you can prove you can afford the payments on the borrowed down payment from another source of income, including income from a spouse.
- If building, you can roll into the loan enough working capital to make the payments for the first few years. (This is amazing if you think about it).
- For ground up construction , the facility must start making money within 2 years of CO per SBA guidelines.
- Credit needs to be good – especially recently, but some lenders will make loans to borrowers will old BK’s with the right explanation.
- You DO NOT need self storage industry experience to get a loan.
- Gifts are allowed.
- Funds from investors are allowed as long as you are putting in enough of your own cash.
- Personal Guarantee required for all 20% or more owners.
- Minimum loan size with most lenders is $350,000.
- Maximum loan size with just ten percent down is approx $9 million and any projects over $5 million need to be of the stronger variety.
- Maximum loan size with 15% to 20% down payment is actually over $20 million.
- 3rd party management companies can be used to manage the facility, but there are a limited number of approved vendors for this.
- With less than ten percent equity in the project you may or may not have to put up other collateral IF you have addl collateral.
- SBA Loan Guaranty fees are typically between 2.5 to 2.75 percent, but are finance-able.
- A market or feasibility study may be necessary for ground up construction.
- The 7a program only has a three year prepayment penalty that allows you refinance with just a one percent penalty after two years.
- Because of the short prepayment penalty, the 7a program can effectively be used a bridge program allowing you to build the facility, get it leased up and then at the end of year 3 you can refinance it without penalty.
- Twenty year term and amortization is available on some Mobile or Portable storage businesses where you will lease the property if there is enough long life equipment.
- You can finance RV and Boat Storage facilities using all of the same guidelines as SBA self storage loans, but the property must be more than just land.
- In almost all cases you will need a regular job/regular income, but IF you have a strong transaction AND you have significant cash/assets it may be possible to get a loan regardless of whether you have a “regular” job/another business.
- Acquisitions with minor or major expansions are possible.
- If you have owned the property for 2 years or more you can use the equity in the land towards your equity/down payment.
- Purchase of an under-performing facility is possible, IF you will be adding onto it and projections provided by a reputable consultant show that the renovated facility will be profitable within a few years.
- You can add solar panels to the rooftops or put in a ground mount system and use the Green 504 to get more SBA eligibility.
- Most 7a loans are going to be floating rate loans between Prime + 1 and Prime + 2, but fixed rates are available. In fact, 25 year fixed rate SBA self storage loans are offered by one of our lenders on the East Coast and 504 loans are almost always fixed.
- There can be other buildings or tenants on the property as long as the self storage component is at least 51% of the total square footage and the self storage income is significant enough.
- Larger commercial storage units are also eligible – in others words the facility does not need to be “mini-storage.”
- You can use both the 7a and the 504 to refinance a storage facility.
- In some cases, a facility constructed of shipping containers can be acceptable.
- It can be also acceptable to cross collateralize other properties in lieu of putting cash down… it just depends on the merits of the deal.
- The down payment is calculated on the “total project costs.” Below is an example from a recent transaction for one of our clients to give you an idea of how the down payment is calculated:
Land Cost: $200,000
Construction Costs: $3,300,000
Construction Contingency: (10%) $330,000
Interest Reserve: $180,000
Lease Up Reserve for Payments: $190,000
Additional Working Capital: $50,000
SBA Guaranty Fee: $110,000
3rd Party Closing Costs: $ 55,000
TOTALS $ 4,415,000
Borrower Down Payment/Required Equity: $441,500
As you can see, Self storage financing via the SBA definitely has it’s place in the storage lending marketplace – especially if you are looking for leverage. Please get in touch if you would like more information:
1-800-414-5285 or jking (at) green commercial capital (dot) com
Or for more info, visit the self storage page of our main site here