Self-storage real estate is not for everyone as a business. The demand for commercial mortgages, construction loans, cash-out leveraging, refinancing loan vehicles, CMBS, bridge lending, mezzanine financing, preferred equity, and real estate private equity, on the other hand, generates a lot of activity for us from private investors, small/middle market real estate entities, and family offices who are into it.
Whether you want to build, acquire, enlarge, or repair a self-storage facility, you’ll need money.
Fortunately, the self-storage market has solid foundations and has experienced steady growth. According to the New York Times, the self-storage sector has generated 3.5 percent annual returns for close to 30 years.
These optimistic findings have attracted the interest of numerous lenders that wish to support self-storage developments. On the other hand, not all lenders for business loans are the same. You must first comprehend your options for storage loans and the principles of self-storage financing in order to correctly fund your project.
Options for Self-Storage Loans
Banks, credit unions, SBA lenders, and alternative lenders all offer loans for self-storage. The sections below will teach you more about the financing choices offered by these three categories of lenders.
SMBA Loans
Self-storage financing is provided by the SBA through the SBA 7(a) and 504 loan programs. SBA 7(a) and SBA 504 loans have the same structure for financing self-storage as they do for any other eligible purpose.
The loan, which is provided by a financial institution, is partially guaranteed by the SBA. Lenders are able to offer SBA loans to candidates who wouldn’t otherwise be qualified because of this partial guarantee. However, the application process is extremely competitive because to the SBA loans’ low interest rates.
Use an SBA 7(a) or 504 loan to buy real estate, expand or repair an existing self-storage facility, or restructure current debt.
Loans from banks or credit unions
You can get a line of credit, a normal loan, or a construction loan from a bank or credit union to help you pay for self-storage projects.
However, it’s important to note that many credit lines have $100,000 to $250,000 limit values. You can need a bigger sum of money to fund your self-storage project depending on its size.
Additionally, a business line of credit is frequently used for pressing financial needs. Most credit lines are for a period of seven years or less. That requires early repayment of your line of credit, which some borrowers can find difficult to do. Obviously, if your self-storage project is small, this won’t be as much of a problem.
Larger self-storage projects are far more suitable to credit union or bank business loans. Federal Reserve records show that loans to small businesses range in size from $13,000 to $1.2 million, with an average credit size of $663,000.
Self-storage facility construction loans are utilized to pay for the construction of these facilities. You normally require a 25% down payment and a loan term equal to the duration of the construction project to be eligible. The remaining balance is due in a balloon payment around the time the building project is finished.
Due to the balloon payment, the majority of borrowers have secured permanent financing before their construction loan term expires.
