Expanding your self-storage facility can be a smart business move, especially if demand in your area is high. Adding more units can increase your revenue potential and attract new customers. However, expanding a self-storage facility can be a costly endeavor, which is why many owners turn to self-storage financing to fund their expansion projects.
When seeking financing for an expansion project, consider the following factors:
Cost of construction materials and labor
Zoning and permitting requirements
Market demand for additional storage units
Potential return on investment
By carefully evaluating these factors and creating a solid business plan, you can increase your chances of securing financing for your self-storage expansion.
Types of self-storage financing
There are several types of self-storage financing options available to owners and developers. Each type of financing has its own set of requirements, terms, and interest rates. Here are some common types of self-storage financing:
Hard money loans are short-term, high-interest loans that are typically used by real estate investors or developers who need quick financing for a project. These loans are secured by the value of the property being financed, rather than the borrower’s creditworthiness. While hard money loans can be more expensive than traditional bank loans, they are often easier to qualify for and can be funded much faster.
Small Business Administration (SBA) loans are government-backed loans that are designed to help small businesses access affordable financing. These loans can be used for a variety of business purposes, including acquiring or expanding a self-storage facility. SBA loans typically offer lower interest rates and longer repayment terms than traditional bank loans, making them an attractive option for many self-storage owners.
Commercial real estate loans are a common financing option for self-storage owners and developers. These loans are typically offered by banks or commercial lenders and can be used to acquire, refinance, or renovate a self-storage facility. Commercial real estate loans typically have competitive interest rates and longer repayment terms than other types of financing.
Conclusion
Self-storage financing is an important tool for owners and developers looking to acquire, build, or improve self-storage units. By understanding the different types of financing available and the specific loan programs offered by lenders, you can make informed decisions about how to fund your self-storage projects. Whether you’re purchasing an existing facility, building a new one, renovating current units, or expanding your business, there are financing options available to help you achieve your goals.
These loans typically require a strong credit score, a solid business plan, and a proven track record of success. The debt service coverage ratio (DSCR) is an important factor in qualifying for a conventional bank loan, as lenders want to ensure that your business can generate enough income to cover the loan payments.
Interest rates for conventional bank loans can vary, but they are typically lower than other types of loans. The terms of the loan will also depend on the lender, but they usually range from 5 to 20 years. Qualifications for a conventional bank loan may be more stringent than other types of loans, but if you meet the requirements, you can secure a large loan amount with favorable terms.
Small Business Administration (SBA) loan
An SBA loan is a government-backed loan that offers competitive rates and terms for small businesses. These loans are ideal for self-storage financing, as they can provide funding for new construction, expansion, or improvements to existing facilities. The SBA offers several loan programs, including the 7(a) loan program, which is the most popular choice for small businesses.
Qualifying for an SBA loan can be challenging, as the application process is lengthy and requires extensive documentation. However, if you meet the requirements, an SBA loan can provide funding for up to $5 million with favorable terms and rates. The DSCR is also an important factor in qualifying for an SBA loan, as the SBA wants to ensure that your business can repay the loan.
Commercial real estate loan
A commercial real estate loan can provide funding for the purchase or refinance of self-storage facilities. These loans typically have competitive rates and terms, but they may require a larger down payment than other types of loans. The DSCR is also a crucial factor in qualifying for a commercial real estate loan, as lenders want to ensure that your business can generate enough income to cover the loan payments.
Commercial real estate loans can offer fixed or variable rates, with terms ranging from 5 to 25 years. Qualifications for a commercial real estate loan may vary among lenders, but they typically require a strong credit score, a solid business plan, and a proven track record of success. If you meet the requirements, a commercial real estate loan can provide funding for the purchase or refinance of self-storage facilities.
Conclusion
Self-storage financing is a valuable tool for investors looking to expand or improve their facilities. With a variety of loan options available, including conventional bank loans, SBA loans, and commercial real estate loans, investors can find the funding they need to take their self-storage business to the next level.
While each type of loan has its own pros and cons, investors should carefully consider their business needs and financial situation before choosing a loan option. By understanding the rates, terms, and qualifications for each type of loan, investors can make an informed decision that will help them achieve their self-storage goals.
Overall, self-storage financing offers investors the opportunity to grow their business and maximize their profits. With the right loan in place, investors can take advantage of the booming self-storage industry and secure a bright future for their facilities.
While self-storage financing can be a great option for funding your self-storage business, there are potential downsides to consider. One potential downside is that qualification requirements tend to be strict, with less room for flexibility in the event you do not meet the minimum eligibility criteria. This can make it challenging for some borrowers to secure the financing they need.
If you are considering self-storage financing, one option to explore is U.S. Bank. U.S. Bank offers a wide variety of loans, including commercial real estate (CRE), SBA 7(a), and SBA 504 loans, with funding of $12.375 million or more.
SBA 7(a) Loan
An SBA 7(a) loan is the most common type of loan offered through the Small Business Administration (SBA). These loans are guaranteed by the government but issued through participating banks and lenders approved by the SBA. To qualify for an SBA 7(a) loan, you must meet general requirements for all SBA loans, criteria specific to the 7(a) program, and any lender-specific items.
If you are interested in an SBA 7(a) loan, consider Grasshopper Bank. As an SBA-preferred lender, Grasshopper Bank offers a seamless loan application process and a personalized experience to help you access funds quickly.
SBA 504 Loan
SBA 504 loans are issued by qualified Certified Development Companies (CDCs) and are designed to provide funding for major fixed assets that promote job creation and business growth. These loans can be used for the purchase or construction of land or buildings, as well as improvements to existing business facilities—making them a suitable option for self-storage financing.
If you need assistance in obtaining an SBA 504 loan, consider Lendio. Lendio is a loan broker with a network of over 75 lenders and can offer 504 loans from various providers with competitive rates.
Commercial Bridge Loan
A commercial bridge loan is a short-term loan commonly used for financing real estate in need of repairs. Once the necessary renovations are completed and there are no health or safety hazards present, the bridge loan is typically paid off by refinancing to a more permanent loan.
For commercial bridge loans, Bloomfield Capital is a recommended provider. Bloomfield Capital offers competitive rates, large funding amounts, and flexible qualification requirements.
Hard Money Loan
Hard money loans are often considered a last resort for financing real estate. These loans are best suited for borrowers who are unable to secure funding elsewhere or are looking to finance a property in need of repairs. Hard money loans can offer fast funding speeds, making them useful for fix-and-flip investors seeking to acquire property quickly.
If you are considering a hard money loan, RCN Capital is a recommended lender. RCN Capital offers competitive rates and a wide range of loan programs, with rates as low as 6% on funding up to $3 million.
How to Get Self-Storage Loans
Obtaining a self-storage loan involves multiple steps that may vary depending on the loan type and lender you choose. In general, the process includes:
Understand Your Needs: Determine how you plan to use the funds, as this can impact your choice of lender and loan program.
Shop Lenders and Loan Programs: Compare lenders to find the best rates and terms and identify loan programs that suit your needs.
Apply and Provide Documentation: Once you select a lender, submit the necessary paperwork to verify your eligibility and ability to repay the loan.
Review and Accept Loan Terms: If approved, review the loan terms to ensure you can afford the payments. If needed, inquire about how the terms were determined to potentially secure better rates and terms.
While the steps involved in obtaining a self-storage loan may vary, these general guidelines can help you navigate the process effectively.
Alternatives to Self-Storage Financing
For borrowers who do not qualify for self-storage financing or want to explore other funding options, there are alternative solutions to consider:
Personal Loan for Business: A personal loan can be a viable option for business owners with strong personal finances and credit history, offering flexibility in fund usage.
Small Business Line of Credit: A revolving credit facility that allows you to draw funds as needed, providing flexibility for business expenses.
Home Equity Line of Credit (HELOC): Similar to a business line of credit, a HELOC uses the value of your home to establish a credit line for business purposes.
Exploring these alternative financing options can help you find the right funding solution for your self-storage business.
