There are a couple of reasons why you might be looking for self storage loans. The first and most obvious would be that you own a self storage business, in which case you can only make as much money as the room you have for storage. But even if you don’t own a storage business, you might simply need additional space for inventory storage—depending on which type of retail or manufacturing field you work in, you can find yourself having a lot of excess material and nowhere to put it. Whatever the case, a business loan geared specifically toward financing or building a storage unit will allow you to push your ceiling higher.
Luckily, there are several ways to finance a storage space. In particular, an SBA 7(a) loan, a conventional bank loan, construction financing, or a simple working capital loan are four of your best options. As is always the case, the nature of your business and your business’s financials will help dictate which is the most appropriate type of business financing for you. Let’s take a closer loo
Not too long ago, SBA lenders didn’t want to finance self storage units, as they were viewed as a source of “passive income.” Recently, though, the SBA reevaluated this notion and decided that self storage businesses are, in fact, scalable businesses—and, as such, can be eligible for SBA loans.
While the SBA offers several loan programs, the most popular is the SBA 7(a) loan, which allows borrowers to use loan funds toward almost any business-related purpose (including self storage units). To secure this type of loan, you need to have a successful business or be looking to purchase an already profitable facility, have great personal and business credit, demonstrate an ability to conserve cash flow, and meet SBA eligibility standards. This loan can fetch up to 25 years in term length for real estate but typically maxes out at a 10-year term.
You’ll need to have a wealth of personal or business assets to lend against, too. As is the case with any other secured loan, secured SBA loans require some sort of collateral to lend against. Secured loans will always have the lowest rates and longest terms, because they’re safest for the lender. When we’re talking about secured SBA loans in particular, the government will guarantee that the intermediary bank will recoup the majority of the loan in case the borrower defaults—up to 85%—which clearly mitigates the bank’s risk even more. On top of that, if you’re coming forth with extra guarantees in the form of a single or group of assets, then you can expect to see even better terms.
So, if having the longest term and lowest rate is most important to you, then an SBA 7(a) loan should be your target self storage loan. Having said that, SBA loans can be difficult to qualify for, and they can take a long time to process: typically three months or so. But if you have the time and the assets, this will probably be the best financing option you’ll find.
A conventional bank loan is often most business owners’ first stop in their search for small business financing, including self storage loans. Why not go to the financial institution that knows you best?
However, the inconvenient truth is that small business owners were defaulting on their bank loans leading up to the 2008 economy crash. This forced banks to shrink their credit boxes considerably when underwriting for mortgages and small business loans.
As a result, the only way to get a traditional bank loan for your business is to have a rock-solid business with consistent profitability, super strong credit scores, and valuable assets to put up as collateral.
But if you are eligible for bank financing, you’ll secure favorable terms (think low interest rates, high loan amounts, and years-long terms). That’s in part because your bank can monitor your finances in your accounts during the loan, and have easy access to your cash if you end up defaulting.
It’s possible that you want to own a self storage company but you don’t have the storage units for that business to take off yet. Or maybe you currently own 10 storage units but want to double your capacity. But constructing storage units from scratch can become expensive. They can also take a long time to complete, let alone begin to recoup revenue on your investment.
Construction loans are geared toward satisfying these pain points, which makes them ideal financing for self storage facilities. Typically, construction loans require an upfront cash deposit, which can be up to 25% of the total cost. Then, you’ll make smaller, monthly payments at a pretty fair rate, and your term length will be about as long as it takes to complete the construction project. But be aware that there’ll be a balloon payment at the end, when you’ll be asked to repay a large portion of what you owe in a single payment.
At the end of the day, not everyone can qualify for a bank or SBA loan, as there’s a long list of qualifications that you and your business have to satisfy to be eligible for these self storage loans.
That doesn’t mean all hope is lost: Instead, look toward a basic working capital loan from an online lender. These loans can vary dramatically in rates and terms, but all of them require a more attainable set of qualifiers than bank or SBA loans.
There are a multitude of loan programs and loan types in the online lending space, so there’s typically a match for everyone, just of varying quality. A typical short-term loan can be anywhere from less than a year to three years in term length, with rates ranging from the high single digits into the twenties. The rate, term, and type of loan you qualify for depends on your business’s financials—generally, the stronger your profitability, credit score, and overall application, the better your terms will be.
On the other hand, you may not want to burden yourself with a term loan, in which case you can opt for a line of credit from an online lender. Use it when you need it, and only pay interest on what you use. These can tend to be a little more expensive than their term loan counterparts, but they offer you more flexibility in case you don’t know your long-term needs.
Because of their easy application processes and fast funding, it’s not uncommon for business owners to use online, short-term loans as a bridge loan for a quick turnaround while they prepare or wait for a longer-term loan to fund, like the ones we talked about above.
Ultimately, the answer to this question depends on the type of business you own, and how you intend to use your self storage loan.
If you’re a self storage business owner, you want to own as many units as there is demand in your area. Having said that, these storage units are not cheap to build or purchase. That’s why your ideal self storage loan will have a longer term, similar to a real estate loan’s terms. Longer terms also permit for higher dollar amounts—which also means you’re going to need collateral to secure that loan. (Typically, any loan over $350,000, or outside of the cash flow means of the business is going to require collateral.)
For a bigger sum—think $350,000 and over—an SBA 7(a) loan or a bank loan backed by personal or business wealth or assets will make the most sense. That said, we always recommend using business assets to secure your loan whenever possible, as you can both build business credit and protect your personal finances.
But for the ecommerce worker who needs more room for their inventory, or the manufacturer who can’t yet afford a proper warehouse, there are other options for you. If you can’t qualify for an SBA or bank loan, or you’re looking for a smaller loan amount, then a short-term loan or line of credit from an online lender can make more sense for you business. These loans are more expensive, but they’re generally much easier to qualify for. They’re also a great option if you’re waiting on funds to come through from a longer-term loan.
Fortunately, there are myriad funding options if you’re hoping to build or purchase a storage unit. But this makes it all the more important to choose the correct option when moving forward with debt; and the above options aren’t mutually exclusive, either. So, we’d recommend you start applications across any loan type that make sense for your needs. Once your loan matches come through, then you can make an educated decision on which is truly the best option for financing your self storage unit.
Forest was on the customer success team at Fundera. As a Loan Specialist, he works directly with small business owners throughout the loan process, helping them find the best financing for their companies.