Self Storage Business Loans From The SBA
Self-Storage Businesses Are Eligible for SBA Loans
The SBA changed the rules for "passive income" properties back in 2010 making Mini Storage Businesses eligible for SBA financing. This is good news for those looking to refinance, acquire or build a self or mini storage facility as SBA financing offers especially high leverage. (RV and Boat facilities are also eligible, as are larger commercial storage units and in some cases, cold storage warehouses).
90% Financing Possible With or Without Experience
Ninety percent financing up to approx $10 million is possible for those looking to build, acquire or refinance a facility.
90% financing is available for those who do not have storage industry experience but have enough relevant business experience and other personal strengths to get a lender comfortable with their ability to own or manage a property. It is not a requirement, but it may help if you have experience with ownership of other types of investment property.
Current self storage owners generally need good credit and a proven track record.
Construction Financing Up To 90%
Construction financing is definitely available and high leverage and very flexible financing structures are possible with SBA loans.
Finance Construction Interest and up to 2 (possibly 3) Years Operating Capital
Perhaps the biggest benefit to using an SBA loan to build a facility is that in many cases ALL of the construction interest plus a 10% contingency and up to a few years of payments can be financed into the loan. With this structure you have a level of comfort knowing that your construction payments as well as your payments during lease up are covered and you can focus on marketing and filling up the facility.
Third Party Management
Many of the mini storage loans originated today are for small businesses and some owners self-manage the properties, while others use an onsite manager or a third party management company. And since SBA loans can now be as high as $20 million+ there are situations where there are true small businesses who have rather large facilities that need a larger third party management company. This has been acceptable in the recent past depending on the language in the management company agreements and some of the larger players like CubeSmart and Extra Space had proven to be acceptable to some lenders.
However, as of January 1st, 2018, the SBA tweaked some of the language in their "underwriting manual" which has made this practice less possible, but there are a few management companies that are approved by SBA and should be more soon, so please contact us to see if your project/management scenario is eligible.
Portable Storage, Mobile Storage
Mobile and portable storage businesses are also financeable with or without real estate. Typically you will need 10% down whether you are financing just the business or the business plus real estate.
If financing just the business and equipment (containers, trucks, etc.) the term of the loan could be up to 20 years depending on the remaining useful life of the equipment. Keep in mind that SBA requires that the lease for any land or buildings (including renewal options) be at least as long as the term of the loan.
Owner Not Local
Ideally, it is best if a borrower is local to a property, but it is not a firm requirement.
Some lenders will allow an out of town owner to borrow using an SBA guaranteed loan if they can make a good case that they will be intimately involved in the ownership and management of the facility AND if they have a strong enough background in real estate, business ownership or some other very relevant experience to give a lender a level of comfort.
Borrowers will need to present a plan that includes, among other things, how often they will visit the property, what procedural safeguards they will put in place to control funds and a plan to monitor security and employees.
RV and Boat Storage
Boat and RV Storage facilities are eligible using the same guidelines as self storage. As with mini-storage, ground up construction typically requires a feasibility study (market study) and everything from a large indoor climate controlled facility to an outdoor facility with minimal property improvments is financeable. The less extensive the improvements, the more important the location and the business plan will be.
Please call 1-800-414-5285 for more information as each situation is unique.
Self Storage SBA Loan Benefits:
- Longer term loans are available (up to 25 years plus the construction period).
- SBA Loans have lower equity and down payment requirements - typically 10% for self storage, but 95% financing is technically possible - for refinances, purchases and construction - if you have other stable cash flowing facilities.
- The prepayment penalty for most loans is just 3 years, which allows you to refinance without penalty after 36 months. You may also be able to refinance after just 2 years and pay a 1% penalty.
- All closing costs are financeable
- Little to NO financial covenants
- 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.
- SBA financing can be used to make improvements or to expand mini warehouse properties and there is a streamlined program available for those with good credit for loans under $350,000.
- Working capital and business debt consolidation are financeable for self storage businesses.Furthermore, under the 504 program, much larger projects are possible (technically as high as $20 million+) and owners of "green" or energy efficient facilities can have a total of $16.5 million in SBA guaranteed loans as long as they produce enough of their own energy..
NON-Recourse, NON-SBA Self Storage Financing
If you have at least 25% equity for a purchase or a refinance AND you are borrowing $2 million or more excellent conventional financing is available for everything from a 15 year fixed rate to a 10 year term with a 30 year amortization and in some cases interest only options are available. 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.
Mini Storage Financing with NO Prepayment Penalty up to 80%
Excellent NON-SBA financing with recourse/personal guarantee but with NO Prepayment Penalty is available up to 75% (possibly 80%) loan to value for properties and borrowers/sponsors with strong financials. Typical minimum loan amount will be $500,000.
Recent Transactions - 90% loan to value and up:
- $4 million ground up construction project at 90% loan to cost. Borrowers had no previous storage experience and one borrower had a previous Bankruptcy.
- $7 million, 90% loan to cost construction/renovation of a former medical office building into mini storage. Borrower did not have storage industry experience, but had very good commercial real estate ownership experience.
- 90% loan to value financing for an under performing mini storage facility in Wyoming in spite of the fact that the clients had no mini storage industry experience. The occupancy for the facility had historically been lower than the rest of the market due to the fact that the current owner was not local and unable to provide real hands-on customer service. Despite this fact, the facility had enough cash flow to service the debt based on a 25 year amortization. Our clients, who are locals, were able to put down only 10% using the SBA 7a program.
- Recent client had no ministorage experience, but owned a few single family investment properties and was looking to acquire a smaller facility with oversized units in Nebraska. The client had good credit and would continue to work his "regular" job. We were able to get him a 25 year loan with only 10% down.
- Refinance of a storage facility in Georgia owned by 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 out of a high rate, shorter term loan into a low rate 5 year fixed with a 25 year amortization that dropped his payments almost in half. The property was located in semi-rural area of North Carolina and was quite basic but had solid cash flow for the last few years.
- Ground up construction of a Boat and RV Storage facility in Colorado
- Refinance of a mini-storage in Alaska for $6 million
- Projections-based purchase of an under performing facility by experienced buyers on panhandle of Florida
- Purchase of existing facility in Michigan for borrower with no storage experience and 10% down
- $7 million ground up construction of a mobile container / portable storage business building (similar to PODS) in Texas
- $2.7 million Ground Up Construction of facility in Ohio to borrowers with previous single family rental property experience and 10% down
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 it is back - see here for details.
There is also "permanent" refinance provision (outlined below) that could be useful as well.
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.
SBA self storage loans were new to SBA lenders in 2011 and some were slow to warm to the asset class since ministorage businesses were typically perceived as passive income properties.
Many lenders now understand the industry better and are actively making loans.
Self Storage Construction Loans Available
Self storage construction financing is definitelyavailable from a few select lenders with many more lenders interested in funding refinances, acquisitions and expansions of existing profitable businesses,
Maximum loan amounts will vary by lender and the SBA programs are excellent if you are trying to finance a transaction with higher leverage or a smaller down payment.
Please contact us at 1-800-414-5285 to discuss your individual situation.