Do you have dreams of being the next Public Storage or Extra Space Storage? Is a boost of capital all you need to get there? Whether you’re looking to acquire, build or expand self storage units, there are self storage financing options available to help you meet your needs.
If approved for a self storage business loan, you may be able to borrow several hundred thousand dollars or several million.
Financing Your Self Storage Business for Success
Are you interested in expanding your mini storage facility. Or perhaps you’re considering buying an existing structure you could convert into a self storage business. Let’s look at some instances in which you might consider self storage financing.
Build a New Self Storage Building
If you’re interested in constructing a self storage building from the ground up, there are various financing options that can meet your needs. Use funds to buy materials, obtain equipment and employ workers.
In determining how much funding you need you might consider the following questions.
- How long will the construction of a new self storage building take?
- How long will it take for your business to start turning a profit?
- Will you manage the facility yourself or hire someone to run it for you?
Purchase an Existing Self Storage Facility
Maybe you’ve found a building you’d like to convert into a self storage facility. Or perhaps you’d like to purchase an active self storage business. In either case, you can apply for financing to expand your business. Find competitive commercial loan rates for your self storage business, and use funds to purchase commercial real estate or finance a company acquisition.
Increase Your Cash Flow
According to trade publication and event-management company Inside Self-Storage, it could take months for self storage expansion projects to break even, while new construction projects lead to negative cash flow, sometimes up to 3 years. With this in mind, you might find yourself in need of working capital.
Best Financing and Loans for Self Storage Businesses
Let’s compare a few options you might consider when researching financing for self storage facilities.
Self Storage Financing for Real Estate or Construction
If you’re looking to purchase existing storage properties or build from the ground up, there are some self storage commercial loans you should consider over others.
Business Term Loan
With business term loans that are designed to be repaid in 1-5 years, you could secure funding of up to a half-million dollars with some lenders. How does it work? With this type of self storage financing, you receive your approved funds all at once. Your payments are fixed and are repaid daily, weekly or monthly, depending on your terms.
With conventional banks, term loans for self storage business owners could take months to fund. In contrast, with alternative nonbank lenders, you could receive funding in a day. In exchange for speed, you may pay a higher interest, so you must weigh if time is your most important consideration.
SBA 7(a) Loans
The SBA 7(a) loan program is designed to bolster small businesses in the U.S., fostering funding to borrowers who may have been turned down for a conventional bank loan. The Small Business Administration (SBA) partners with lenders, insuring loans up to a certain percent, as high as 85% in some cases. This guarantee creates less of a risk for lenders and more opportunities for borrowers.
The 7(a) loan is versatile. Approved borrowers can use funding for working capital or a variety of real estate-related expenses, including:
- Land leases or purchases
- Building purchases
- Building construction
- Site improvements
- Building renovations
- Facilities expansion
- Raw material purchases
SBA loans for self storage facilities could be approved up to $5 million. Repayment terms for real estate purchases extend to 25 years, with additional time allowed for construction. Otherwise the maximum repayment term is 10 years.
Self storage financing rates for SBA-insured loans can vary, but the SBA has set maximum rate limits. As of July 2019, the maximum fixed interest rates that lenders can charge for 7(a) loans range from 10.5% for loans exceeding $250,000 to 13.5% for loans of $25,000 or less. Use our self storage loan calculator to estimate your payments. Simply enter your estimated interest rate, loan repayment term and total loan amount.
SBA-backed loans offer competitive terms and self storage financing rates. However, the downside is these loans take longer to fund compared with alternative financing options.
Self Storage Financing for Expansion or Renovations
If your storage financing needs are fluid or don’t require extended repayment terms, you might consider the following loan products.
Business Lines of Credit
Business lines of credit allow you to borrow funds when you need them, and only then do you pay interest. With most business lines of credit, you’re approved for a specific credit line, and you can borrow up to that amount. As you pay down your debt, your credit line increases accordingly, up to your original credit limit. Depending on the lender and the financial health of your business, you could be eligible for a line of credit up to $500,000.
Generally, short-term loans are repaid in 18 months or less. While rates are usually higher than you’d see with longer term loans, you could actually save money on interest charges in the long run when compared with a long-term loan. This is because your loan repayment term isn’t drawn out over many years.
Often, qualification requirements for approval are less stringent than you’ll see with long-term loans. So if you’re looking for quick access to funding, this type of self storage financing can be an option to consider. If approved, you could receive access to funds in as little as 1 day.
Self Storage Financing for Equipment
If you’re in the portable self storage business, equipment financing can help you purchase (or lease) mobile storage containers or transport trucks. With an equipment loan, the machinery you purchase serves as collateral for your financing.
This means if you fall behind on your loan and can’t make your payments, the bank has the right to take the equipment from you. Because of this value-added security, equipment financing is usually considered less risky for lenders and easier for borrowers to qualify. Also, it’s important to note that repayment terms generally don’t exceed the useful life of the equipment.
Discover Your Best Business Loan Options
Where to Find Self Storage Business Loans
Self storage financing options are available through conventional banks and alternative nonbank lenders.
With conventional banks, the application and funding process is lengthy, and you could be required to submit the following documentation:
- Personal financial statement
- Business financial statements
- Profit-and-loss statements
- Tax returns
- Real estate purchase agreements
- Schedule of collateral
Alternative lenders’ application and approval requirements are generally more lenient than you’d experience with a conventional bank.
You might consider an online lender if you have:
- Poor credit
- No collateral
- Limited financial documentation