self-storage loan is based upon two main items: you and your project. This article features several ways to best present them to the lenders.

Your goal is to have a 700-plus credit score to make it easier to get the loan and to earn the best interest rate. Your credit score is based upon the following six items: on-time payments, oldest credit line, credit used, recent inquiries, new accounts, and available credit.

It is important you do not open or close credit card accounts. Pay off all credit cards in full and on time, plus make sure you do not use more than 30 percent of your credit card capacity. If you approach the 30 percent threshold, make an early payment. If you have an online app to access your credit card info, it is easy to check your balance and make a payment. You can also check your credit score anytime and typically see how you are doing on those six items.

Below is an example of the six items noted above reported on an online Capital One account.

In addition to preparing all the bank-supplied application forms, an application cover letter is crucial. In a relatively quick glance, it summarizes your project, loan requested, you, your team, your marketing plan, your market, your projected lease-up, and profit and loss. It is an opportunity to let the bank understand that you are an expert and provide the bank confidence you will succeed and repay the loan.

The cover letter is typically several pages long with an appendix. Don’t forget to include pictures such as a location map, building elevations, and floor plans.

Some lenders (most SBA lenders) require a third-party feasibility study. Often the feasibility study must be updated to match your final net rentable square feet and unit count. It is best if your proposed rental rates in your bank cover letter match the rates in the feasibility study.

It is common practice in construction to include a 5 percent contingency for unforeseen costs, and it should be included in the construction budget. Lenders love it when you have an additional 3 percent contingency cash outside of the construction budget (i.e. 3 percent in your bank account or securities outside of your contribution to the development cost).

Of course, if you are responsible for the carrying cost to breakeven, you must have a realistic breakeven period and have that cash available.

SBA lenders typically require 10 percent to 15 percent down, while traditional lenders require 25 percent to 35 percent for their best customers. Even putting an extra 5 percent to 10 percent down can help you qualify for a loan and/or get a lower interest rate. The more you put down, especially during these high interest rates, the more cash flow to your pocket!

Just like you want designers and contractors with self-storage experience, you want experienced self-storage lenders.

It would be best if you talked with several self-storage lenders, both locally and nationally. Ask how many self-storage loans they did in the past year and confirm they are looking to make self-storage loans. Ask them point blank how much you need to put down to get the best rates and ask about their current interest rate for good self-storage projects/clients.

Typically, traditional lenders do not let you borrow soft development costs and carrying costs. It is important to have this conversation occur up front, so you budget accordingly.

You may need to use an SBA lender to reduce your down payment and/or borrow some soft costs and carrying costs.

You want to use an SBA “preferred lender” because they typically have more experience and do not have to submit all applications to SBA for approval, which can delay your project. There are two types of SBA loans: SBA 7a and SBA 504. They each have different borrowing limits, required deposits, and different interest rates. Just as important, they have different rules and the ability to include carrying costs to breakeven.

To get the best interest rate and borrow carrying cost, you may need to take out both an SBA 7a loan and an SBA 504 loan. Not all banks provide both types of SBA loans. Even if they do, they may not provide both loans for a single project, so this must be discussed early on.

Narrowing down your lender group and compiling all the items you need for a loan takes time. I often see the loan process take four-plus months, because people wait too long to prepare the banking info. You should have final unit numbers early during the site plan design. This allows you to prepare the bank loan cover letter with real income and expense projections with an estimated construction cost. With that in hand, you can have preliminary conversations with lenders. If you do not have the time and energy, you may want to use a loan broker who has an extensive list of lenders they know and work with.