Should I use an SBA loan for my new Self Storage construction project?
It depends, but if you do not have the 25 to 35 percent cash equity to go toward the project (down payment) that most traditional lenders require there may be limited other options. SBA lenders typically require 10 – 15% cash equity and can loan up to $5,000,000 for an SBA 7a loan
For a single-story 2 phase project, you can often get your facility built with $500K equity +_. vs over $1.5 MM equity investment required for many traditional lenders
If I have the equity required by a for a typical bank loan should I consider an SBA loan?
You still may want to consider an SBA loan for a couple of reasons as follows:
1) SBA loans allow you to borrow soft costs and carrying costs which many traditional lenders do not. So even if you have the equity for the loan you will need additional funds for design, soft costs and carrying costs until the facility breaks even if you go with a traditional loan.
2) Most commercial loans are typically for either 5 or 10 years. SBA loans can be up to 25 years allowing you to lock in the current low-interest rates.
3) If you may need your funds for other reasons, the reduced SBA equity requirements will allow you to keep more of your cash equity.
If I get an SBA loan can I use a management company to operate my facility?
Generally, SBA loans are for owner-operated facilities. To ensure this is the case the SBA has recently made several new requirements for Self Storage SBA loans. One major one that restricts some management companies (and the value of having a management company) is that owners must be responsible for the facility employees.
Inside Self Storage put out a great article last year highlighting How Recent Changes to SBA Loan Requirements May Affect Self-Storage Borrowers Under the new rules, SBA borrowers must:
- Approve the annual operating budget
- Approve any capital expenditures or operating expenses over a significant dollar threshold
- Have control over the bank accounts
- Have oversight over the employees operating the business (who must be employees of the applicant business)
The last clause is italicized because it’s the most subtle and important point for self-storage owners using third-party managers. When the SBA says staff must be employees of the applicant business, it’s referring to the borrower. In other words, facility staff cannot be employees of the management company.
Storage Authority Franchise owners do qualify for SBA loans. Storage Authority is listed on the SBA Registry.
Are all SBA lenders the same?
No! Just like all lenders are not the same. SBA preferred lenders
do not have to submit the SBA loan for an SBA review and approval. When a non-preferred lender has to send a loan into the SBA for approval it can take extra time and even lead to changes to the terms of the loan.
While certain items are required for SBA loans every SBA lender does have a lot of terms that they determine and can be flexible on. That is why it is good to work with a preferred SBA lender that understands self-storage loans and your team.
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