Self-Storage Financing

When it comes to securing financing for your self-storage project, there are numerous options available. Depending on the scale and type of the project, your lender can help you determine which type of loan is best for your business goals.

The most common ways to finance new construction or conversions are through conventional loans, SBA loans or joint venture loans.

Conventional loans — These loans usually require 25-35% equity (down payment) as well as strong credit and good net worth. You will also usually have loan covenants that you will need to abide by, such as Debt Service Coverage Ratio (DSCR) or Loan to Value (LTV) covenants. These covenants are important because if you don’t uphold them, you could have an issue or face foreclosure. With conventional loans, the bank may be looking at secondary means of repayment.

SBA loans – SBA loans can be used to build a project with potentially less money out of your pocket (as little as 10%) than a conventional loan. There are 2 types of SBA loans —7(a) and the 504. Below are some of the specifics of each:

7(a) – You can finance up to 90% of the total loan costs. This would include working capital and lease up capital while your facility leases up after opening. This is the most vital time for your business. Between the time that you open the doors and when you are breaking even, you need to make sure that you can cover the bills during this time. There are no financial loan covenants such as DSCR and LTV with an SBA loan. You can’t have your loan called unless you don’t make your payments.

504 – You can finance between 80-90% of the construction costs of the loan. You aren’t able to include the lease-up capital like you can with the 7(a), but you may be able to get lower rates.

Joint Venture loans – Details around these loan types vary but could be a viable option for certain business types.

It’s critical to work with a qualified, experienced lender who understands how these loan types work and is well-versed in the nuances of the self-storage industry. Contact your Mini Storage Outlet rep for suggestions on who to contact for your lending needs or contact Terry Campbell at Live Oak Bank Terry.campbell@liveoak.bank. Visit Live Oak’s website at www.liveoakbank.com/self-storage to learn more.

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