When it comes to financing a self storage project, there can be an overwhelming amount of options. The process of choosing a lender and loan product may not always seem like an easy and transparent task. Whether you are looking to get into the industry for the first time or you are an experienced operator, SBA loans have benefits for all users.
The most commonly used SBA loan product is the 7(a) program which has a $5 million cap limit. Most 7(a) lenders will approve a loan with a 10% down payment (cash or equity in other properties). A 25-year term and amortization is allowable to avoid three or five-year renewals and for new construction you can get an interest-only period for construction and lease-up.
The interest rate is set by the bank, not the SBA, so you could apply for a 7(a) loan at five different banks and receive five different rate structures. If you obtain a 7(a) loan with an undesirable rate structure, but the low down payment and parameters allow you to get into the industry, you do have the option of paying off the loan after three years without a pre-payment penalty.
For experienced owners looking to expand their business or perhaps refinance existing debt on a self storage business, the other SBA loan option is the 504 program. A typical 504 loan on a purchase or new construction project is generally 10% down with a 50% first mortgage held by the bank paired with a 40% note held with a CDC. The note held with the CDC is a fixed-rate loan for the entire 20-year term and amortization which eliminates interest rate risk on a sizeable portion of the debt. The note held by the bank (which can have a 25 to 30-year amortization) will have a rate similar to the 7(a) program and will be bank-specific.