What is Self Storage Financing Used For?
Self storage businesses often generate reliable and profitable revenue streams. They can also enable valuable tax benefits like depreciation deductions and cost segregation strategies.
Nevertheless, running a self storage business can be financially challenging, especially if your cash flow is tight.
Enter: Self storage financing. These loans can be used to build new storage locations, renovate old properties, or buy existing storage businesses.
Without financing, it can be expensive to stay afloat in the self-storage industry. Furthermore, doing so could take funds away from critical areas of your business, like paying rental expenses or running daily operations.
In situations like these, getting a self storage loan can take pressure off your cash flow. It can also allow you to fund new business opportunities without giving up equity to an investor, making growth less stressful and more profitable.
Types of Self Storage Financing
As a business owner, you have multiple self storage loan types to explore.
SBA Self Storage Loans
The Small Business Administration (SBA) offers two loans that can be used to finance self storage businesses.
The first is SBA 7(a), which provides up to $5 million to qualifying businesses. Eligible uses for these funds include:
- Working capital
- Buying real estate, equipment, machinery, self-storage units, and other supplies and materials
- Funding new construction projects or renovating buildings
- Launching or acquiring a self-storage facility or business
- Refinancing existing business debt
Head here to learn more about the 7(a) loan.
The second is SBA 504, which provides up to $5.5 million for businesses with a tangible net worth of less than $15 million and an average net income below $5 million after federal income taxes for the past two years.
Its goal is to encourage job creation and business growth. Eligible uses include:
- Buying or funding construction projects, buildings, self-storage properties, land, new facilities, machinery, mini storages, and equipment
- Improving land, parking lots, utilities, and existing facilities
Unlike the 7(a), borrowers can’t use SBA 504 loans to cover working capital, buy inventory, or refinance debt. It also can’t be used to invest in rental real estate.
Head here to learn more about the 504 loan.
If your business operates in a rural area (“rural” is defined as “not in a city or town” with a population above 50,000), you may also qualify for the USDA’s Business and Industry loan. Similar to the SBA 7(a), this loan can be used for:
- Buying and developing land or buildings for commercial or industrial properties
- Buying machinery, equipment, supplies, or inventory
- Refinancing debt if it increases cash flow or supports new jobs
- Buying existing businesses
For the full list of details, visit usda.gov.
Small Business Self Storage Loans
Small business loans are opportunities to access flexible capital that can be applied to a wide variety of uses. Loan amounts range from $1,000 to as much as $10 million in funding, and can hit your bank account in as little as 24 hours.
As a self storage business owner, you have no shortage of options. First, consider a working capital loan. These loans cover daily operating expenses, including rent, utilities, supplies, and employee salaries. They’re a good way to keep your business running if cash is tight.
Next, you can also apply for a business line of credit. Lines of credit can be applied wherever your business needs cash the most. You can draw as much or as little capital as you want, and you only pay interest on the amount you use.
Another option is equipment financing, which can help pay for racks, frames, drawers, and other supplies that increase your buildings’ occupancy rates. The best loans come with low APRs and can help build your business credit, though many also require high down payments and strong credit to qualify.
Finally, you can also consider applying for a business credit card for smaller expenses. Business credit cards are generally easier to get approved for compared to most loans, and can also help you earn cash back rewards on items you already pay for.
We’ve compiled the best small business loans into an easy-to-compare list here.
Commercial Bridge Loans for Self Storage Businesses
If you’re pressed for time and need to purchase real estate, buy inventory, or cover cash flow ASAP, a commercial bridge loan can spot you the funds you need.
These short term loans are often offered by banks or private lenders, and can be processed quickly. However, they also require collateral to secure and most need to be repaid within a year. They can also carry higher interest rates.
Nevertheless, the speed at which they’re approved makes them a valuable tool if time is of the essence. Head here for a detailed look at commercial bridge loans and how to qualify.
Traditional Bank Loans for Self Storage Businesses
The pros of getting a conventional loan from the bank include low interest rates, flexible usage, and credit-building benefits. You can use it to buy commercial real estate, restock equipment, fund self-storage projects, or boost working capital. Its predictable monthly payments may also help keep your cash flow stable.
Nevertheless, the application process can also take one to three months for approval, and you may need to provide collateral if you don’t have a strong credit score. Startups will likely find the approval process more difficult as well.
Head here for a detailed breakdown of bank loans and how to qualify.
The Best Self Storage Financing Options
The best self storage financing option for your business depends on your unique needs.
To make finding your best options easy, use Nav. Our platform syncs with your business data to instantly show you the opportunities you’re most likely to qualify for. This is the fastest way to find the right fit.
Nevertheless, there are a few self storage loans you can’t go wrong with if you qualify.
What You Need to Get Self Storage Financing
As is the case with many other loans, the following factors will increase your chances of qualifying for self storage loans:
- Good business and personal credit
- Ability to pay back the loan with business cash flow
- Ability to provide adequate collateral
- Ability to demonstrate that funding will go towards a purpose that falls within the loan’s accepted use cases
Not every loan requires all of these elements, but the more you can check off, the stronger your likelihood of approval.
What to Consider When Financing Your Self Storage Business
Before you decide to pursue financing, there are two questions to ask.
First, does getting a loan make practical sense? Business loans can come with high interest, which means you should be confident your future cash flow can support the expenses before you accept the terms.
Weigh this against the positive value these loan options can provide. Whether it’s an immediate cash flow boost, much-needed debt relief, or funding to take advantage of new opportunities, well-planned financing can be just what you need to take your business to the next level.
The second question is: Which loan program is right for your business? There are a lot of options on the market, and not all of them will be a good fit at the moment. To avoid getting tied to self storage lenders that hurt your business, focus only on ones that match your unique needs.
The good news is that finding the right fit doesn’t have to be overwhelming, and it doesn’t have to involve hours of research. Nav lets you instantly see your best self storage financing options based on your business data. Our algorithm shows you the loans you’re most likely to qualify for so you can compare them fast.
Create an account to see your options.
This article was originally written on May 9, 2022 and updated on July 8, 2022.