How to Get a Loan for Self-Storage
Self-storage real estate is not for everyone as a business. The demand for commercial mortgages, construction loans, cash-out leveraging, refinancing loan vehicles, CMBS, bridge lending, mezzanine financing, preferred equity, and real estate private equity, on the other hand, generates a lot of activity for us from private investors, small/middle market real estate entities, and family offices who are into it.
As a business, self-storage real estate is not for everyone. However, the need for commercial mortgages, construction loans, cash-out leveraging, refinancing loan vehicles, CMBS, bridge lending, mezzanine financing, preferred equity, and real estate private equity for private investors, small/middle market real estate entities, and family offices who are into it generates a lot of activity for us.
You’ll need money whether you want to develop, buy, expand, or repair a self-storage facility.
Fortunately, self-storage is, and has always been, an industry with strong fundamentals and consistent development. According to the New York Times, the self-storage market has earned an average annual return of 3.5 percent for nearly 30 years.
Many lenders are interested in funding self-storage developments as a result of these encouraging results. Business loan lenders, on the other hand, are not all the same. To properly finance your project, you must first understand your storage loan alternatives and how self-storage financing works.
Self-Storage Loan Options
Self-storage loans are available through SBA lenders, credit unions, and banks, as well as alternative lenders. You’ll learn about the financing options available from these three types of lenders in the sections below.
The SBA offers self-storage financing through its SBA 7 (a) and 504 loan programs. The structure of SBA 7 (a) and SBA 504 loans for self-storage financing is the same as it is for any other permitted use.
The SBA partially guarantees the loan, which is made by a financial institution. Because of this partial guarantee, lenders can make SBA loans to applicants who would otherwise be ineligible. However, because of the low-interest rates on SBA loans, the application procedure is quite competitive.
You can buy property, expand or repair an existing self-storage facility, or restructure existing debt with an SBA 7(a) or 504 loan.
Credit Union and/or Bank Loans
A credit union or bank can help you fund self-storage projects with a line of credit, a regular loan, or a construction loan.
It’s worth mentioning, however, that many credit lines have limit amounts ranging from $100,000 to $250,000. Depending on the scope of your self-storage project, you may require a higher sum to fund it.
In addition, a company line of credit is typically used for short-term financial requirements. The majority of credit lines have terms of seven years or less. That means you’ll have to pay off your line of credit promptly, which some borrowers may not be able to do. This will, of course, be less of an issue if your self-storage project is tiny.
Credit union or bank business loans are substantially more suited for larger self-storage projects. According to Federal Reserve data, the average small company loan amount is $663,000, with loan amounts ranging from $13,000 to $1.2 million.
Self-storage construction loans are used to fund the building of self-storage facilities. To qualify, you’ll typically need a 25% down payment and a loan term that matches the length of the building project. You’ll owe a balloon payment for the remaining around the time the building job is completed.
Most borrowers have permanent financing lined up before their construction loan term finishes, thanks to the balloon payment.