It's widely known that credit has become increasingly more difficult to obtain for the acquisition of self storage facilities. Underwriting standards have risen, loan to values have fallen and the number of sources actively lending is smaller than it was several years ago. The good news is that rates are very attractive, the number of active lenders is actually increasing and self storage is now eligible for SBA financing which will certainly increase the volume of transactions in 2011.
There are distinct advantages with an SBA loan vs. conventional financing. First and foremost is a higher loan to value with a typical range of 75% to 90%. Secondly, all SBA loans are fully amortizing with no balloon payments or call provisions and the SBA 7a program will allow an amortization of up to 25 years.
As with any financing option there are also drawbacks. First, this program is designed for "owner- operators" not for a "passive" investor with third party management. SBA doesn't specifically preclude a facility from being managed by a third party but it would be much more difficult to be approved. Also, the SBA is designed primarily for the acquisition or refinance of existing self storage facilities as opposed to the development of a new property so true ground-up construction loans through the SBA would be very difficult to obtain.
There are many particulars associated with this new financing vehicle for self storage and we would be happy to discuss the pros and cons as they relate to your specific needs. In general, we see this as a positive for the industry as it presents an attractive option that didn't previously exist before for the many small self storage operators.
