SBA Loan for a Self Storage Business - Ultimate Guide

August 19, 2023

Adam Hoeksema

There are roughly 59,000 self storage businesses in the US, based on recent tax return data from the IRS.  Many of these are small businesses which means whether you are looking to start your own self storage facility or buy an existing storage business, an SBA loan could be a good financing option for you to consider.  

I spent over 12 years as the Executive Director of an SBA lender in the Midwest.  I have also owned ProjectionHub for over a decade where we help business owners create financial models for self storage businesses among many other types of businesses.  I wanted to take these two experiences and write a guide that I hope will help you as you consider an SBA loan for your self storage business.  

I plan to cover the following topics:

With that as our road map, let’s dive in!

Top SBA Lenders for Self Storage Businesses

Live Oak Banking Company stands out as the leading SBA lender in the Self Storage Businesses category. They have approved 310 SBA loans with an average loan amount of $1,870,264. Below, you'll find a list of the top 10 SBA lenders for Self Storage Businesses based on data from 2018 to 2023.

Lender # of Loans Approved Average Loan Amount
Live Oak Banking Company 310 $1,870,264
Bank Five Nine 106 $1,139,188
BayFirst National Bank 13 $1,676,062
Mountain America FCU 11 $1,321,100
The State Bank 9 $1,803,667
Harvest Small Business Finance, LLC 7 $1,128,500
First Commonwealth Bank 7 $722,614
Byline Bank 6 $1,850,833
Manufacturers and Traders Trust Company 6 $215,333
BMO Harris Bank National Association 6 $1,458,567

Top SBA Lenders to Finance a Self Storage Acquisition

For those seeking SBA loans to acquire self-storage facilities, Live Oak Banking Company leads the list with 111 approved loans and an average loan amount of $1,638,828. Here are the top 10 SBA lenders for financing self-storage acquisitions.

Lender # of Loans Approved Average Loan Amount
Live Oak Banking Company 111 $1,638,828
Bank Five Nine 31 $1,057,274
BayFirst National Bank 6 $2,698,917
Bank of Hope 2 $817,500
First Southwest Bank 1 $991,200
East West Bank 1 $850,000
Bank OZK 1 $1,000,000
Renasant Bank 1 $318,200
Umpqua Bank 1 $1,028,500
Heritage Bank of Commerce 1 $1,593,000

Top SBA Lenders for a Self Storage Startup

For entrepreneurs looking to start a self-storage business, Live Oak Banking Company is the prominent SBA lender. They've approved 106 loans for self-storage startups, with an average loan amount of $2,364,632. Below, you'll find the top 10 SBA lenders for financing self-storage startups.

Lender # of Loans Approved Average Loan Amount
Live Oak Banking Company 106 $2,364,632
Bank Five Nine 43 $1,547,795
The State Bank 5 $2,088,200
SouthState Bank, National Association 4 $1,632,725
First Southwest Bank 4 $862,725
Manufacturers and Traders Trust Company 3 $349,000
Plains State Bank 3 $1,273,167
First Commonwealth Bank 3 $1,395,633
Citizens Bank 3 $258,067
Signature Bank of Georgia 2 $1,476,150

Resource: Find an SBA Lender that is the perfect fit for your situation

What is an SBA Loan? 

An SBA loan, provided by the U.S. Small Business Administration, is a set of loan programs designed specifically to support the growth and development of small businesses. Rather than directly lending money to small business owners, the SBA sets guidelines for loans and partners with various lenders, community development organizations, and micro-lending institutions to provide these loans. The beauty of an SBA loan lies in its more flexible terms, often offering lower down payments, extended repayment periods, and more competitive interest rates than a traditional business loan. It's a vital resource for entrepreneurs and small business owners seeking capital to expand, invest in equipment, or even manage cash flow, ensuring that they can thrive and contribute to the nation's economic growth.

Can I use an SBA Loan for a Self Storage Business?

Yes, you can use an SBA loan for a self-storage business. There are several types of loan programs that cater to a wide range of business needs, including the establishment, acquisition, or expansion of a self-storage facility.

Two of the most common SBA loan programs that might be utilized for a self-storage business are:

  1. 7(a) Loan Program: This is the SBA's flagship program. It can be used for a variety of purposes, including purchasing land or buildings, covering construction costs, and refinancing existing debt. If you're looking to start a self-storage business or expand an existing one, the 7(a) program might be suitable.
  2. 504 Loan Program: This is more targeted towards businesses that want to acquire major fixed assets, such as land or buildings. It's especially apt if you're considering buying or constructing a new self-storage facility.

There are also some less popular SBA loan programs like the SBA Microloan Program which can offer loans up to $50,000 and could be used for a small self storage business. 

Why an SBA Loan is a Good Fit for Self Storage

An SBA loan is a good fit for the self-storage industry for several reasons:

Flexible Usage: SBA loans offer broad flexibility in their usage. Whether you are looking to acquire land, construct new facilities, renovate existing units, purchase equipment, or refinance existing debt, SBA loans can work for any of these situations.

Extended Repayment Periods: Given the nature of the self-storage business, it might take time before a new facility becomes profitable, especially if there's a ramp-up period to reach optimal occupancy rates. The extended repayment terms of SBA loans, which can range up to 25 years for real estate, offer business owners more manageable monthly payments and better cash flow.

Lower Down Payments: Traditional commercial real estate loans might require a significant down payment, sometimes upwards of 20% or more. SBA loans, on the other hand, often have lower down payment requirements. 

Competitive Interest Rates: Since the SBA guarantees a portion of the loan, it reduces the risk for lenders. This often translates into more favorable interest rates for borrowers compared to conventional loans. Over the long term, this can lead to significant savings for a self-storage business.

Accessibility for New Entrepreneurs: One of the barriers for new entrepreneurs in the self-storage industry can be stringent lending requirements from traditional banks, especially if they lack a substantial track record. The guarantee provided by the SBA can make lenders more open to funding newer entrepreneurs.

Growth and Expansion: With the self-storage industry showing consistent demand, especially in growing urban and suburban areas, there is a constant opportunity for expansion. SBA loans can provide the necessary capital for operators to capitalize on these opportunities, be it through the establishment of new facilities or the expansion of existing ones.

Economic Stability: The self-storage industry is often considered recession-resistant. Even in economic downturns, people require storage solutions during life transitions such as downsizing, relocations, or temporary job assignments. This stability makes the sector appealing for lenders, especially with the added security of an SBA guarantee.

Next let’s look at the differences between using an SBA loan for new development vs. acquiring an existing storage business. 

Using an SBA Loan to Buy a Self Storage Business vs. New Construction

Depending on whether you are looking to buy an existing storage facility or develop a new self storage facility from the ground up, there are some different approaches and considerations as it relates to your SBA loan.  

Learn More:  How to Start a Self Storage Business and How Much you can Make

New Construction of a Self-Storage Facility

  1. Initial Outlay and Planning: Constructing a new facility often requires substantial groundwork, including land acquisition, zoning approvals, permits, and architectural planning. These preparatory steps can be time-consuming and might also involve unexpected costs.
  2. Ramp-Up Period: A newly constructed facility will likely have a period during which it must build its clientele from scratch. This can affect the cash flow, especially in the initial months or years of operation.
  3. Design Control: One advantage of new construction is that entrepreneurs have complete control over the design, layout, and features of the facility, tailoring it to the needs of the local market or integrating modern technologies and amenities.
  4. Potential for Higher Returns: While initial costs might be higher, a well-located and efficiently managed new facility can yield higher returns in the long run, especially if there's a clear demand in the area.
  5. Financing Scope: When securing an SBA loan for construction, it's essential to have detailed cost projections, including potential cost overruns. Lenders will scrutinize the feasibility of the project and its potential profitability.

Resource: Self Storage Financial Model for New Construction

Buying an Existing Self-Storage Business

  1. Immediate Cash Flow: Purchasing an established business means inheriting its existing clientele, leading to immediate revenue generation and cash flow.
  2. Established Track Record: An existing business comes with a history. Lenders can review past financial statements, occupancy rates, and operational efficiencies, which might make them more comfortable extending the loan.
  3. Potential for Operational Improvements: While an established business has a track record, it also presents opportunities. A new owner might identify areas of operational improvement, marketing strategies, or potential expansions to increase revenue.
  4. Due Diligence: Purchasing an existing business requires comprehensive due diligence, including assessing any existing debts, potential liabilities, the condition of the facility, and any contractual obligations.
  5. Integration Challenges: If an entrepreneur already owns other businesses or self-storage facilities, integrating the newly purchased facility into the existing operations might pose challenges in terms of management practices, technology systems, or branding.
  6. Cost: While buying an existing facility might involve a significant upfront cost, it might be lower than constructing a new facility from scratch, especially when considering the time value of money.

Resource: Self Storage Acquisition Financial Model

How to Apply for an SBA Loan for a Self Storage Business

Applying for an SBA loan for a self-storage business requires careful preparation, documentation, and a systematic approach. Here's a step-by-step guide on how to go about it:

  1. Research and Decide on the Right Loan Type: The SBA offers various loan programs, but the two most commonly used for self-storage businesses are the 7(a) and the 504 loan programs. Determine which one aligns best with your needs.
  2. Prepare a Comprehensive Business Plan: Lenders will want to see a detailed business plan that covers:
  1. Market analysis and target audience.
  2. Competitive landscape.
  3. Revenue projections and financial forecasts.
  4. Detailed plans for the usage of loan funds (e.g., construction, land acquisition, equipment purchase).
  5. Marketing and management strategies.

Resource: Free Self Storage Business Plan Template

  1. Compile Necessary Financial Statements: These include:
  1. Personal financial statement.
  2. Income, balance, and cash flow statements of the business (for existing businesses).
  3. Pro-forma self storage financial projections for the future.
  4. Personal and business tax returns for the past 2-3 years.
  1. Check Your Credit Score: Your personal credit score can be a significant factor in the loan approval process. It's essential to ensure that your score is favorable and to address any discrepancies or issues beforehand.
  2. Determine Your Collateral: While SBA loans are partially guaranteed, lenders will often still require collateral. For self-storage businesses, this could be the facility itself, equipment, or other business assets.
  3. Gather Legal Documents: These might include:
  1. Business licenses and registrations.
  2. Articles of incorporation.
  3. Leases (if applicable).
  4. Contracts or agreements with third parties (if any).
  5. Franchise agreements (if you're purchasing a franchise).
  1. Approach an SBA-Approved Lender: Start with your current bank, as they might offer SBA loans. If not, seek out local or national banks, credit unions, or specialized lenders that offer SBA-backed financing. 

Resource: List of Top SBA Lenders by Loan Volume

  1. Submit Application and Documents: Once you've chosen a lender, submit the application form and provide all requested documentation. It's essential to be thorough and transparent to increase your chances of approval.
  2. Undergo Review: The lender will review your application, which may involve assessing your business plan, creditworthiness, collateral, and other criteria. They might also conduct an appraisal of the property or assets involved.
  3. Closing and Funds Disbursement: If approved, you'll move on to the loan closing process, during which all terms and conditions will be finalized. Once the loan closes, funds will be disbursed as agreed, either as a lump sum or in stages, depending on the nature of the project.
  4. Stay in Communication: Even after receiving the loan, keep open lines of communication with your lender. Inform them of any significant changes in your business or if you foresee challenges in loan repayments.

I hope this guide has been helpful as you consider an SBA loan for your storage business.  If you would like to chat about your specific project, feel free to reach out, I would be happy to try to help!

About the Author

Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 50,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.

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