As a small business owner, you can use self-storage financing to purchase, build, or conduct improvements to self-storage units. Common sources for self-storage financing include loans from traditional banks, online lenders, loan brokers, hard money loans, and Small Business Administration (SBA) loans through the 7(a) and 504 loan programs.
Getting self-storage financing usually involves evaluating your credit and business finances. It may also include reviewing the condition and value of the storage unit and facility to determine how much you can borrow.
Explore your SBA lending solutions now with Grasshopper Bank |
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How Self-storage Financing Works
Self-storage loans can finance a variety of business purposes. For self-storage units, funds can be used to acquire a storage facility, construct a new one, or renovate an existing unit. Depending on your intended use of funds, you can learn more about how self-storage loans work below.
If you’re looking to acquire an existing self-storage facility, you’ll want to look into a loan for a purchase or acquisition. This business need often comes up as a result of analysis from an investment company or real estate investment trust (REIT) that believes it can yield a strong return on investment over the long run.
A new construction self-storage loan is used for instances where no existing storage facilities exist. Getting a self-storage loan for this purpose can be more difficult since there is no prior data on how profitable the facility will be. However, if this is done in an area with comparable facilities, then it can be more feasible, as data from those properties can be used to determine the likelihood of success for the new storage facility.
You can improve your approval odds by conducting your own due diligence with a market study. This may include a review of occupancy rates, data on the population and growth rate, and historical trends for revenue and expenses.
When creating your budget and projections for income and expenses, consider the following:
- Working capital reserves to cover unexpected expenses
- Expected timeline to reach stable occupancy levels
- Time until self-storage units can be rented
- Operating expenses during the lease-up phase
- Loan fees and monthly payments
- Funds required for a down payment
- Daily operating expenses, such as rent, salaries, and employee benefits
Self-storage units needing maintenance can be funded under this loan purpose category. Renovations can be an easy item to overlook when maintaining a property, but they are an important part of ensuring the safety and security of your customer’s belongings. They can also help attract and keep customers by improving your property’s curb appeal.
Two common types of renovations done for self-storage units are:
- Replacement of rolling doors: The constant opening and closing of a storage unit’s doors can cause them to wear down and eventually fail, resulting in safety and security issues. This is often one of the largest expenses associated with maintaining a self-storage facility.
- Reconfiguration of storage units: One of the most common items to change here is the size of individual storage units, which can often come as the result of changes in customer demand.
If you want to add self-storage units to your facility, an expansion loan may be what you need. In some cases, this may also be considered a construction loan, as it shares many similarities with regard to building units from the ground up.
A self-storage loan for expansion is typically easier to get than a new construction loan because of the pre-existing data to show how the current facility has performed in the past. This gives more assurances as to projected cash flows in the future.
Rates, Terms & Qualifications for Self-storage Financing
Depending on your business needs, the rates, terms, and qualifications will vary per loan type and lender. Common factors taken into consideration when applying for financing can include credit score, DSCR Debt Service Coverage Ratio , and financial strength of your business.
Although rates and requirements vary among lenders, we’ve listed typical figures you’ll see for several common types of loans you can use for self-storage financing.
Conventional Bank Loan | SBA 504 Loan | Commercial Bridge Loan | Hard Money Loan | ||
|---|---|---|---|---|---|
Typical Loan Amount | $15 million+ | $5 million | $5.5 million | $30 million+ | Up to $50 million+ |
Typical Repayment Term | 25 years | 25 years | 25 years | 1-3 years | 1-3 years |
Typical Interest Rate | 8% to 10% | 11.5%-16.5% | 6%-6.5% | 7%-15% | 8%-18% |
Down Payment | 20% | 10% | 10% | 10%-25% | 10%-25% |
Funding Speed | 30-90 days | 45-90 days | 60-90 days | 10-30 days | 10-14 days |
Credit Score | 680 | 680 | 680 | Varies | 620 |
DSCR | 1.25x | 1.25x | 1.25x | 1.00 to 1.40x | Varies |
Conventional Bank Loan
A conventional bank loan can offer large loan amounts with competitive rates and terms. A 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.
You can consider a bank such as U.S. Bank for self-storage financing. It offers a wide variety of loans—including CRE, SBA 7(a), and SBA 504 loans—with $12.375 million or more in funding.
SBA 7(a) Loan
An SBA 7(a) loan is the most common type of loan offered through the SBA. SBA loans are guaranteed by the government but issued through participating banks and lenders appointed by the SBA. To be eligible, you must meet general requirements for all SBA loans, criteria specific to the 7(a) program, and any lender-specific items.
If you’re looking for an SBA 7(a) loan, consider Grasshopper Bank. It’s an SBA-preferred lender that offers a seamless loan application and personalized experience to help you access funds quickly.
SBA 504 Loan
SBA 504 loans are issued by qualified CDCs and are designed to provide funding on major fixed assets that will subsequently promote job creation and business growth. Funds from an SBA 504 loan can be used for the purchase or construction of existing land or buildings, as well as the improvement of existing business facilities. All of these allowable uses are consistent with the most common uses of self-storage financing.
For help getting this type of loan, check out Lendio. It is a loan broker with a network of over 75 lenders and can offer 504 loans from a variety of providers with low starting rates.
Commercial Bridge Loan
Commonly used for financing real estate in need of repairs, a commercial bridge loan is a short-term loan that can fund any necessary renovations. Once completed and there are no more health or safety hazards present, a bridge loan is typically paid off by refinancing to a more permanent loan.
Bloomfield Capital is one provider we recommend for this type of loan. It offers competitive rates, large funding amounts, along with flexible qualification requirements.
Hard Money Loan
Hard money loans are often considered a last resort for financing real estate. Generally, they’re best suited for borrowers who are unable to get approved elsewhere for funding or are trying to finance a property in need of repairs. A hard money loan can offer fast funding speeds, so it can also be useful for fix-and-flip investors looking to acquire property on a short timeline.
We recommend Kiavi for its fast funding speeds and competitive rates. You can get up to $1.5 million in funding in as little as 10 days.
Pros & Cons of Self-storage Financing
| PROS | CONS |
|---|---|
| There are multiple loan options that can assist with the acquisition, construction, or renovation of a storage facility. | Some loan types can be expensive or difficult to qualify for, depending on the lender. |
| It can often be used for a variety of business uses in addition to storage financing, depending on the loan type. | Some lenders may impose restrictions on how funds can be used. |
| It suits both short-term and long-term financing needs. | It may take a while to access funding, depending on the loan type. |
How to Get Self-storage Loans
The steps involved with getting a self-storage loan will vary slightly depending on the specific loan type and lender you choose.
- If you’re going for an SBA loan, you can see our instructions on how to get an SBA loan.
- For other types of loans, check out our guide on how to get a small business loan.
You can get self-storage loans from many different types of lenders. Some examples are banks, credit unions, loan brokers, and online lenders. If you’re unsure where to start, you can see our list of the best self-storage loans.
Alternatives to Self-storage Financing
For borrowers who don’t qualify for a self-storage business loan or are simply exploring all available financing options, there are a few alternative options.
- Personal loan for business: For borrowers with strong personal finances and credit history, getting a personal loan can be a good option for business owners with limited resources. Funds rarely have restrictions, although they may have lesser loan amounts in comparison to other business loans. See our top-recommended personal loans for business funding.
- Small business line of credit: As a revolving credit facility, a small business line of credit allows you to request a draw on the line, have the funds deposited to your account of choice, and repay the balance over time. Funds are flexible and can be used for expenses applicable to your business. Check out our roundup of the best small business lines of credit to find a lender.
- Home Equity Line of Credit (HELOC): Similar to a business line of credit, a HELOC is a revolving credit line with a credit limit based on the value of your owned home. You can draw on the line and repay the balance over time. As with most personal loans, funds have limited restrictions and can be used for a variety of business purposes. Read our guide on using a HELOC to fund your business to learn more.
Frequently Asked Questions (FAQs)
Various types of loans can help finance a storage unit, whether via an SBA loan program, a working capital loan from a bank or other lending institution, or short-term financing solutions like bridge or hard money loans. Depending on your business’s needs, you can utilize any one of these loan types to finance a self-storage unit.
Qualification criteria will vary depending on the loan type and lender you choose. Generally, factors such as credit score, annual income, and time in business play a role in your odds of approval.
Loans can be used to acquire, construct, renovate, or expand self-storage units. Depending on your business needs and the loan program you choose, funds are generally flexible and can be used for a wide variety of business storage purposes.
Bottom Line
Now that you know how self-storage financing works, you can determine if it’s a good fit for your business needs. Whether it be to acquire a storage facility, construct new units, or renovate an existing unit, there are different types of loans that can be used to finance your business. Before proceeding, be sure to evaluate your business goals and shop around with multiple lenders before committing to a loan agreement.
