SBA Self Storage Loans & Self Storage Construction Loans
SBA self storage loans are available for up to approximately $17,500,000 depending on the loan program and structure.
The SBA 7a program can used for projects of approximately $10 million with just 10% down and the SBA 504 program can accomodate $20+ million projects.
SBA self storage loans can used for all of the following purposes:
Self Storage facility purchase
Self storage construction financing - including loans for construction of a new facility
Purchase and expansion (or renovation) - including "turnarounds" of under-performing facilities
Self Storage facility refinance for better terms
Refinance and expansion/renovation of an existing facility
Partner Buy-Outs
Partner Buy-Ins
FYI: SBA RV and Boat storage financing is also available using the exact same guidelines as shown on this page
100% Self Storage Financing
100% self storage financing is possible 3 different ways via the SBA programs.
If you already own a successful self storage facility for a long enough period of time to get a lender comfortable that you know what you are doing, and you are purchasing another facility in the same general geographic area then you do NOT need a down payment. FYI: the SBA does not clearly define what "same geographic are means," so it is up to the lender and as an example, some lenders are okay with it meaning the entire Southeast US or possibly the entire West Coast.
If you already own a successful self storage facility for a long enough period of time to get a lender comfortable that you know what you are doing, and you are going to build/start another another facility in the same general geographic area then you do NOT need a down payment.
If you are purchasing a self-storage facility and the seller is willing to hold a 2nd mortgage equal to at least 10% of the purchase price and this note is on "full standby" for 24 months then the seller note can be considered by the lender as your down payment. For a better understanding of seller debt on standby, you can read this post: full standby seller note.
90% Self Storage Financing
90% loan to value, as well as 90% loan to cost, self storage financing - and 90% Boat and RV storage facility financing - is possible with both of the SBA programs that allow for the financing of real estate - the 7a and 504.
SBA 7a Loan for Self Storage
If you are purchasing a self storage facility or property then SBA self storage financing is available for $5 million or more with 10% down using the SBA 7a program.
$10 million in "7a" financing is available for exceptionally strong borrowers who put up additional collateral (equity in other properties). Lenders that offer the higher loan amounts accomplish this by putting an "unguaranteed" 2nd mortgage behind a $5 million 7a first mortgage. The additional collateral you put up helps mitigate the additional risk.
SBA 504 Loan for Self Storage
It is also possible to use the 504 program to get 90% financing when purchasing an existing self storage property IF you have relevant experience and you are buying a facility with consistent, profitable cash flow based on historical tax returns. The benefit of the 504 is it allows much larger loan amounts.
90% self storage financing is available with the 504 for projects in the $12 million range for experienced borrowers. Much higher loan amounts are possible with the 504 when putting 15% to 20% down.
Experience
These loans are available for those who do and those who do not have storage industry experience. Those lacking storage experience must have enough relevant business experience and other personal strengths to get a lender comfortable with their ability to own or manage a facility. It is definitely NOT a requirement but it can help if you have experience with ownership of other types of investment property or businesses.
Current self storage owners generally need good credit and a proven track record.
SBA Self Storage Down Payment Requirements
Either SBA program allows you (or your spouse, if married) to borrow the down payment from another source/another lender assuming you can make the payments on those borrowed funds from yours (or your spouse's) other source of income.
Other sources of down payment include gifts, investors, tax and penalty free retirement account 401k rollovers, retirement account loans, and seller financing on "full standby." If using these alternatives sources for the down payment a lender will still require you have enough of your own "skin in the game" (or at least some real estate collateral). How much that is depends on the full details of your request.
SBA Self Storage Construction Loans - 85% to 100%
Ground Up
Construction financing is definitely available and high leverage and very flexible financing structures are possible with both programs.
If you are building a storage unit business from the ground up then 90% self storage financing is available with an SBA 7a loan if it is your first facility.
You can also finance up to 90% of a construction project using the 504 if the new facility is an "expansion" of your existing self storage business. If it is a true startup then the 504 requires 15% down whether it is ground up construction or a conversion of an existing building.
Finance Construction Interest and First 2 Years of Payments
Perhaps the biggest benefit to using an SBA loan to build a facility is that some lenders will finance ALL of the construction interest plus a 10% construction contingency, interest reserves, all closing costs and most importantly, ramp up reserve/working capital to make the payments for first two years of the loan.
This ability to finance up to the first 2 years of payments into the loan is what really sets SBA self storage loans apart from conventional lending.
Prepayment Penalty
The SBA 7a program is a single close loan that allows you to finance land, construction, all costs paid prior to closing (borrower has to pay them but they are finance-able so they are credited towards your down payment or equity or credited back to you at closing) plus all costs mentioned above.
It has a 3 year "declining" prepayment penalty that is 5% in year 1, 3% in 2 and just 1% in year 3.
10% Down (or less) and No Payments for 2+ Years
Self storage construction loans structured with the SBA 7a program allow for a down payment of just 10% (or possibly no down payment if you already own a facility).
Furthermore, the program allows you finance the cost of land, all construction costs and interest, all closing costs AND up to 2+ years of working capital to fund your losses as you ramp up occupancy.*
Additionally, the 3 year prepayment penalty starts to wind down from the day of closing, so when you consider the various flexible ways of coming up with the down payment (or the fact that experienced owners might not need a down payment), plus the ability to finance all payments during construction AND up to the first 2 years of payments once you open for business then you have a self storage construction financing that offers the following:
minimal to no down payment or the ability to creatively come up with the down payment
the possibility of having no payments out of pocket for approx 2 or, in some cases, 3 years
the ability to sell or refinance the facility - possibly with "cash out" to go buy or build another - and do so without a prepayment penalty just 3 years from the day of intial closing (or with just a 1% penalty 24 months from closing)
These guidelines are tailor-made for someone looking for high leverage "investment property financing" who wants a repeatable formula with essentially what amounts to very attractive bridge/construction-to-perm financing.
Whether or not you plan to hold the property long term, this structure can give you 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.
*New construction using the 7a program requires the project get to breakeven 24 months after opening.
The interest rate you pay for an SBA self storage loan can be fixed or adjustable.
Under the 7a program, most SBA self storage lenders offer floating rates pegged to the Prime Rate, but there are definitley more conservative lenders for the right transactions who can offer a lower rate that is not based on the Prime Rate and there are lenders who offer fixed rates.
For the Prime Rate-based lenders, most transactions fall in the Prime + 0 to Prime + 1 range, but the rate could actually be below Prime or even as high as Prime +3 for a really difficult transactions. Floating rates are much more common for ground up construction but it is not an absolute as some construction lenders will offer fixed rates, however they are typically less agressive with regard to loan to value or loan to cost.
Long term fixed interest rates of 25 years are definitely possible for stronger projects or for a refinance of an exisitng faciliity.
Interest Rrates For SBA 504 Loans for Self Storage
The SBA 504 program offers a two loan self storage financing structure where you can typically get a 3, 5, 7 or possibly a 10 year fixed rate first mortgage amortized over 25 or 30 years with a 25 year fixed rate second mortgage making for a very attractive blended interest rate. The first mortgage rate can be Prime-based on based on some other index (SOFR, 10 year Treasury, etc.).
The 504 can be used to finance larger self storage projects including construction with 10% to 15% down depeding on whether or not the loan is for an expansion or acquisition of an existing business.
Projects in the range of $20 million are possible with the SBA 504 loan for self storage.
Third Party Management - Big Management Companies Can Manage as of August 1, 2023
Many of the mini storage loans originated today are for small businesses and most 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 had 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.
This all changed back on January 1st, 2018 when SBA tweaked some of the language in their "underwriting manual" which made this practice less possible, however, as of August 1, 2023 it IS possible to use the big management companies again. This is a major change in the SBA rules for somewhat passive owners and should open up to opportunitities for borrowers who prefer to be less hands-on and use the best available management companies.
There are a few management companies that are approved by SBA and there should be more soon, so please contact us to see if your project/management scenario is eligible.
Finance Solar Panels on Self Storage
Many current owners of mini-storage facilities have realized the benefits of putting solar panels on the rooftop or on their property as there can be significant benefits to doing so between various state and federal incentives, accelerated depreciation, cost savings, the ability to sell energy "back to the grid" and the good PR that comes from being known as a "green facility."
The Federal Solar Tax Credit provides a major cost savings as the credit for a solar system installation is still 30% as of 2019.
Solar panels are actually financeable - especially with SBA - as lenders have come to realize the value it provides long term. Obviously it adds to the cost and there are various considerations regarding additional weight on a building, the age of a roof, available land, appearance, local zoning, etc., but it is something worth considering and it is possible to finance the cost of the solar installation with some lenders.
SBA Loans for Portable Storage & Mobile Storage
Mobile and portable storage businesses similar to PODS like Go Mini's, UNITS and Mi-Box 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 take advantage of SBA self storage financing 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.
SBA RV and Boat Storage Facility Financing
Boat and RV Storage facilities are eligible using the same guidelines as self storage. As with mini-storage, ground up construction might require a feasibility study (market study) and everything from a large indoor climate controlled facility to an outdoor facility with minimal property improvements is financeable. The less extensive the improvements, the more important the location and the business plan will be.
Additionally, you can use an SBA loan to finance an RV park and/or an RV park that includes RV and Boat Storage or self-storage units.
Please call 1-800-414-5285 for more information as each situation is unique.
Self Storage Financing - SBA Loan Benefits:
Below are some of the benefits of SBA loans for self storage. You can visit our blog for a more compete rundown of the positives and negatives of an SBA self storage loan.
Longer term loans are available (up to 25 or 30 years plus the construction period).
SBA Loans have lower equity and down payment requirements than conventional bank loans - anywhere from 0 to 15% down depending on whether it is a SBA 7a self storage loan or a 504.
The prepayment penalty for 7a loans is just 3 years, which allows you to refinance without penalty after 36 months or you could refinance after just 2 years and pay a 1% penalty.
All closing costs are financeable.
Little to NO financial covenants.
SBA financing can 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 purchase, purchase and expand, refinance, refinance and expand or for ground up construciton. "Turnarounds" of under-performing facilities are also possible.
The Green 504 program allows you to have over $40 million in SBA-guaranteed loans across multiple projects.
Conventional financing is available if you have at least 25% equity. Various loan options are available including 15 year fixed rates and 10 year fixed with a 30 year amortization and in some cases interest only options are available. Additionally, 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.
Self Storage Financing - Recent Transactions:
$17 million ground up construction loan using SBA 504 program with 15% down.
$7.35 million ground up construction and refinance with 5% down. Lender refinanced borrower's existing SBA loan that was 2 years old, leveraged the equity in that property for half of required down payment on the new 504 ground up construction loan and provided an addl 7a loan to cover working capital and closing costs.
$4 millionground 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 Wyomingin 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 - 10% down.
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 - 10% down.
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 with 10% down (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
$400,000 loan for the purchase of a bank owned property. Borrowers had no previous self storage experience. 10% down and imperfect credit.
$1.5 million loan for ground up construction of a mini-storage and boat storage facility with 10% down in Washington. Borrower had no previous storage industry experience.
There are numerous ways to refinance and SBA loan for self storage including the following:
(Another) SBA 7a loan - you can actually refinance a higher rate SBA 7a loan with a lower rate 7a loan. This can make sense if you acquired a built a facility and you are 2 or 3 years into the loan and have solid cash flow on the business tax returns, but not enough equity to refinance into another type of loan that could offer better terms.
SBA 504 loan - you can refinance from a 7a to 504, which can sometimes make a lot of sense. You can also refinance just the first mortgage of an existing 504 loan and leave your 504 2nd mortgage in place.
Conventional Bank loans
Conventional Financing provided by major commercial lenders
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 andeligibility 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 loanandeligibility 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.
Current Market
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 definitely available 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.
