Self Storage Business Loans From The SBA
Self-Storage Businesses Are Now Eligible for SBA Loans
The SBA has changed the rules for "passive income" properties making Mini Storage Businesses eligible for SBA financing. This is big news for those looking to refinance, acquire or build a self or mini storage facility.
Self Storage SBA Loan Benefits:
- Longer term loans are available (up to 25 years).
- SBA Loans have lower equity and down payment requirements - as low as 10 to 20% for self storage - which is helpful for refinances, purchases and construction.
- SBA financing can be used to make improvements or to expand mini warehouse properties.
- Working capital and business debt consolidation are possible for self storage businesses.
- SBA financing can now be used to acquire or refinance multiple self storage/mini warehouse businesses since SBA eligibility is not determined by the number of loans but by the total amount of SBA eligibility used and this amount is now $5 million ($5.5 million for green or energy efficient buildings).
Furthermore, "green" or energy efficient facilities have a $5.5 million 504 (second) mortgage limit PER PROJECT making it possible to finance numerous facilities with the program.
NON-Recourse, NON-SBA Self Storage Financing
If you have at least 25% equity for a refinance (or 25% down for a purchase) AND you are borrowing at least $4 million then excellent, non recourse financing is available with very low rates. Properties need to be stabilized with good historical financials.
Please contact us at 1-800-414-5285 to see what is possible.
Recent Funding
We recently helped a client refinance a storage facility he owned combining it with the purchase of 2 other bank-owned facilities with (effectively) zero out of pocket.
Client was purchasing 2 foreclosed properties owned by 2 different banks and was looking to leverage his equity in a 3rd property to make it happen. We assisted in structuring a transaction where he refinanced his existing facility to a lower rate/longer term loan which allowed him to purchase the 2 foreclosed properties. The client brought 10% to closing for the down payment on the 2 properties and the lender was able to structure the loan so that he received 10% back at closing in the form of working capital - effectively creating 100% financing.
Refinance Option for Self Storage Facilities
The temporary refinance option offered through 504 Small Business Administration program that enabled the refinance of self and mini storage facilities at 90% loan to value expired September of 2012, but there is a "permanent" refinance provision (outlined below) and a lot of speculation that temporary program might be coming back as their appears to be bi-partisan support for it.
The 7a refinance program will continue to be available.
504 "Permanent" Refinance AND Expansion Option
A refinance option is available for businesses undergoing an expansion.
The caveat is that the cost of the "expansion" has to be twice what is currently owed on the subject property or properties.
An "expansion" is defined as: "any Project that involves the acquisition, construction or improvement of land, building or equipment for use by the small business applicant."
To qualify, the amount borrowed for new construction, expansion of an existing location or expansion to a new location must be for the same business to be considered eligible.
In other words, you can refinance an existing debt as part of an expansion of your business.
A few examples:
- You own a facility and owe $1 million on it and you want to purchase of a competitor's location for $2 million.
- You own a facility and owe $1 million on it and you want to build a new location with total project costs of $2 million.
- You own a facility and owe $500,000 on it and you want to expand the facility at a cost of $1 million.
In order to qualify there are a few key guidelines that must be met:
- 85% or more of the debt to be refinanced must be "504 eligible" - i.e. land, buildings, equipment.
- The new loan will provide a monthly payment that is 10% lower than the existing financing for that portion of the existing debt
- You have been current on all loans to be refinanced for at least the last 12 months
Higher SBA Loan and Eligibility Limits - Larger Businesses Eligible
The relatively new Self Storage Business guidelines also coincide with the following changes:
- New higher SBA 7a loan and eligibility limits of $5 million.
- Larger businesses are now eligible for SBA loans:
A small business is now defined as having a tangible net worth of up to $15 million and net - after tax - income of less than $5 million on average for the last 2 years.
- New higher 504 loan and eligibility limits including the ability to fund multiple large projects if facilities are energy efficient or produce some of their own renewable energy. The energy efficient test requires a 10% reduction in energy consumption and it might be possible use it in tandem with the 504 refinance option. (See refinance info below).
Click here: SBA Green Loans for energy efficient information
More Detailed Info:
Multiple Self Storage Facilities Now Financeable
All of the recent changes should have a significant positive impact on the Self Storage Industry, especially the increase in the SBA maximum eligibility rules.
SBA 7a loans are now available up to $5 million OR multiple 7a loans can be used to finance (or refinance) multiple properties. This is because the SBA eligibility is not calculated per loan but per borrower/business owner, so having one loan does not disqualify you from getting another. (i.e. you can have multiple loans that total $5 million).
More Eligibility with the 504 Loan Program Might Be Possible
Even higher loan amounts and project costs are available to storage facility businesses with the 504 program because the program consists of 2 loans - a first mortgage from a bank or lender and a 2nd mortgage guaranteed by the SBA, but only the second mortgage counts toward your maximum SBA eligibility...so if you primarily use the 504 program you should be able to finance more properties.
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Current Market
SBA self storage loans were new to SBA lenders in 2011 and some were slow to warm to the asset class since passive income properties were not eligible previously.
Many lenders now understand the industry better and are actively making loans.
Self Storage Construction Loans
Self storage construction financing is getting easier for strong borrowers, but it can still be a challenge. "Projection based" transactions where borrowers have good cash flow from other properties, businesses or sources are easier to get funded.
Lenders are much more willing to fund refinances, acquisitions and expansions of existing profitable businesses.
Please contact us at 1-800-414-5285 to discuss your individual situation.
