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Self Storage Loans: Where to Find Them for Your Business

As the owner of a self-storage business, your revenue would likely be tied to the amount of space you have available for rent, but building and operating a large facility may not be cheap. A self-storage loan could help you cover the costs of construction, expansion or renovation of your business, as well as day-to-day expenses.

Self storage is a $38 billion industry in the U.S., according to SpareFoot, a marketplace for storage facilities across the country. Between 45,000 and 52,000 self-storage facilities operate throughout the country, providing 1.7 billion square feet of rentable storage space. Self-storage construction costs have been on the rise in the industry in recent years, exceeding $5 billion in 2018.

Although facilities vary in design and size, a typical self-storage business sits on at least 2.5 acres with about a half-dozen one-story buildings or 1 to 2 two-story buildings with a mix of units inside that are accessible by large roll-up doors, according to the Self Storage Association. The business could encompass 10,000 to 100,000 square feet, with 10-by-10 air-conditioned or heated storage units inside. There also may be an on-site apartment for the manager or business owner to reside on the property. Fences, security alarms, surveillance cameras and parking for boats or recreational vehicles are among the added features a facility may have.

If you’re struggling to keep up with the costs of constructing and outfitting your business, a self-storage business loan could help. We’ll illustrate a few options you could rely on to finance your company.

What are self-storage loans?

A variety of financing options are available to cover the costs associated with running a self-storage business. Here are a few types of loans that would apply to your industry.

Commercial real estate loans

A commercial real estate loan functions like a home mortgage, but for commercial property rather than residential. These loans allow business owners to finance the purchase or renovation of property, as long as the business takes up at least 51% of the building. Repayment terms for commercial real estate loans can span five to 25 years, and borrowers are typically required to make a 10% to 50% down payment. A commercial real estate loan could come with fixed or variable interest. Banks, alternative lenders and Small Business Administration-backed financial institutions issue commercial real estate loans.

Commercial construction loans

Self-storage business owners can use commercial construction loans to build a new facility from the ground up, or to purchase construction equipment and materials. Construction loans typically require a large down payment — at least 20% of the cost of the project. Banks, credit unions and alternative business lenders offer commercial construction loans.

Working capital loans

Working capital financing can cover daily expenses for self-storage businesses. Working capital comes in the form of short-term or long-term loans, revolving lines of credit, invoice factoring or financing, and merchant cash advances. The product you choose would depend on the amount of capital you need and how fast you’d like to pay it back. Working capital financing is available from alternative lenders, as well as financing companies and traditional banks.

What lenders evaluate

When applying for a self-storage business loan, a lender may look for the following information before approving your business for financing:

  • How you plan to spend the money
  • Current profit and loss statement and balance sheet
  • Business tax returns
  • Personal tax returns
  • Personal financial statement and resume
  • Rent roll (total rent due by each tenant and how much has been paid to date)
  • Management reports including payments, rent, fees and other performance data
  • FICO score of at least 600

Where to find a self-storage loan

When shopping for a loan for your self storage business, consider checking out these options.

U.S. Small Business Administration

The SBA offers several loan programs, two of which are suitable for financing the real estate costs of self-storage businesses.

7(a) loans

SBA 7(a) loans are generally available up to $5 million and can be used to purchase land or buildings, construct new space or renovate existing property. The SBA backs these loans, which SBA-approved lenders issue to qualifying business owners.

Repayment terms for 7(a) loans can exceed 25 years if the loan is used to pay for real estate. Using the loan to cover equipment or working capital costs would result in terms up to 10 years. The maximum interest rate for fixed-rate loans would be 12.81% and the maximum for variable-rate loans would be the prime rate plus 4.75%.

504/CDC loans

SBA 504 loans are available to finance owner-occupied real estate or long-term equipment purchases. A third-party lender would provide 50% or more of the loan amount, and up to 40% could come from an SBA-backed Certified Development Company, up to $5.5 million. You would be expected to contribute at least 10% as a down payment. Borrowers make two payments: one to the bank, which may set its own terms, and another to the CDC, which has a fixed interest rate.

Terms for 504/CDC loans can span 10 to 25 years; interest rates are based on current market rates, but are typically lower than those for 7(a) loans. The project that you’re financing would act as collateral on the loan. 504/CDC funds cannot be used for working capital expenses like inventory, or to consolidate or repay debt.

Banks

Traditional banks offer commercial real estate loans for business owners who purchase property. Banks typically prefer borrowers with strong personal credit profiles, a healthy business and low existing debt. We focused on lenders that advertised expertise in self-storage businesses, but other banks such as Bank of America and CIT Group offer commercial real estate and construction loans with rates as low as 5% for amounts as high as $2.5 million that could be used for purchasing land or remodeling or expanding an existing space.

Ameris Bank

The Georgia-based bank has locations in Alabama, Georgia, Florida, South Carolina and Tennessee. It offers industry-specific expertise not just for the self-storage business, but for everyone from convenience store owners and restaurateurs to pharmacists and veterinarians. Ameris offers the SBA loans we mentioned above.

TCF Bank

Though it is part of a proposed merger with Chemical Foundation Corp. in Detroit, TCF is currently headquartered in Minnesota with branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona and South Dakota. Like Ameris, TCF specializes in self-storage business loans as an SBA-approved lender.

Alternative lenders

Online business lenders can provide alternative financing to cover working capital expenses for self storage businesses. In addition to well-known online small business lenders like Kabbage, (which offers lines of credit) and OnDeck (offering lines of credit as well as term loans up to $500,000 with rates as low as 9.99%), these online lenders specialize in self-storage business loans.

BFS Capital

BFS Capital provides financing to help self-storage business owners pay for new storage facilities, equipment or building renovations. BFS Capital offers working capital loans between $5,000 to $500,000. If approved, you could receive funding in two business days. To collect repayments, BFS Capital makes automatic withdrawals from borrowers’ bank accounts on a daily or weekly schedule. Repayment terms and interest rates would be determined upon receiving a loan offer.

Live Oak

The online lender got its start offering SBA loans to veterinarians and has since branched into other industries, including self-storage. The Wilmington, N.C.-based bank is the nation’s largest SBA 7(a) lender, outranking larger banks such as U.S. Bank, Wells Fargo and JPMorgan Chase.

Getting started in the self-storage business

If you’re thinking of opening, expanding or investing in a self-storage business, it’s an industry that has recently seen record construction spending and completed units, according to Marcus & Millichap, a commercial real estate services and consulting firm. It projects that completions will be down in 2019 but rents will be up.

And there’s still room for opportunity in areas that have a shortage of self-storage units, which are in demand by millennials who prefer renting over buying and by businesses expanding in a growing economy. Metros with room for growth may include: Riverside and San Bernardino, Calif.; Columbus, Ohio; New Haven, Conn.; Chicago; Philadelphia; Houston and several California metros, including Riverside and San Bernardino,San Francisco and Oakland, Sacramento and Orange County.

The bottom line

Self storage is a large and lucrative industry, but running your own facility could be a pricey endeavor. From construction expenses to safety features, the costs can quickly add up.

Self-storage business loans can help you bridge financial gaps within your business. You could turn to banks and alternative lenders for real estate and construction financing, as well as working capital financing to help with daily operations.

Before choosing a lender, be sure to shop around to find the right rates and terms that work for you. Once you receive an offer that hits the mark, you could focus on growing your self storage business.

The information in this article is accurate as of the date of publishing.

 

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