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