Due to recent changes in the SBA guidelines (Via the Small Business Jobs Act passed in late 2010) and specifically how they define “passive income,” self storage facilities now fit the SBA financing box.
Before the changes, more than 50% of the gross sales of the self storage operation had to come from non rental income, such as from selling moving boxes. This guideline has been removed and now self storage owners are on a level playing field as any other small business owner trying to finance commercial real estate with these government loan programs.
What are our benefits to SBA financing as they relate to Self Storage?
- Reliability of closing. Because lenders get guarantees from the government, they are much more willing to offer self storage financing. Also, banks are required to report only a fraction of the debt on their balance sheet as compared to reporting 100% of it with conventional commercial mortgages. This puts less pressure on their capital reserve ratio’s and keeps banks out of trouble with the FDIC. Bottom-line, while traditional conventional lenders hesitate, SBA lenders close.
- Highest level of financing in the biz. 90%- 80% financing via the SBA 504 loan and SBA 7a loan is widely available. These loans are structured via a “total Project Cost” basis. Which means that construction costs and fees are financed into the loan. Get a better idea of SBA loan fees here.
- Longer amortization schedules and NO balloons. While most traditional banks offer 15 or 20 year amortization schedules on self storage loans, often with 5 year balloons, SBA loans are normally on 25 year schedules; again with no balloon. Also, depending on the program, fixed rates up to 20 years are available.
- Loan amounts up to $13 million.
SBA loans are now one of the best and reliable forms of financing in the business for self storage.