or self-storage business owners and acquisitions-minded entrepreneurs, the path to a Certificate of Occupancy or a successful closing often hinges on one critical hurdle: the equity injection. Whether you are building a multistory climate-controlled facility or buying a rural drive-up site, lenders want to see your “skin in the game.”

To help you navigate these requirements, this guide breaks down the specific rules for self-storage financing, acceptable capital sources, and post-close liquidity requirements unique to the storage industry.

• Land Equity – If the land is already owned by the borrower, its purchase price or appraised value can count toward the equity injection, less any existing debt. Whether the purchase price or appraised value is used to determine equity depends on how long the land has been owned and which loan product is being used.
• Spent Project Costs – For many construction projects, spent project costs, such as architect or engineering fees, can count toward the borrower’s equity injection. Your lender will verify the spent project costs via paid invoices and other forms of proof of payment.
• Cash – Often, the down payment is sent via wire at closing to the title company. However, not all that money needs to come from the borrower alone. Equity partners can contribute a portion of the equity injection in exchange for ownership in the borrowing entity. Just make sure you understand if the lender will require personal guarantees based on ownership percentages. SBA loans, for example, require anyone with 20 percent or more ownership in the borrowing entity to guarantee the loan. Someone who wishes to be a limited partner may want to keep their ownership below that threshold. Even with investors, your lender may want the key principals to have personal funds invested as well, to show they have “skin in the game.”

• Funds from Checking, Savings, or Brokerage Accounts – Typically, lenders will trace the funds for 60 to 90 days, so be prepared to explain any large deposits during that period.
• Documented Gifts – Common in first-time storage developments, gifts are acceptable but require a certified gift letter. The lender must be 100 percent certain this isn’t a “shadow loan” that you secretly intend to pay back once the facility starts cash-flowing.

• Borrowed Funds – You can use borrowed funds to contribute to an equity injection, although you will have to meet some additional criteria. HELOCs and personal loans are both options for obtaining additional funds for an equity injection. For SBA loans, you must show an outside income source (like a day job or other rental properties) that can comfortably service the HELOC or personal loan payment without relying on the self-storage facility’s yet-to-be-earned profits.
• Seller Notes – In rare circumstances, a seller note may be able to count toward the required equity injection. Your lender will need to review the structure and terms of the note to determine if it can be equity.

Even acquisitions may need some working capital included in loan proceeds to help make minor improvements, tackle deferred maintenance, or simply bridge the gap until the facility is self-sufficient on its debt.

• Document everything. In the “Know Your Customer” (KYC) era, you must maintain a clear paper trail showing where your cash has been for the last 60 to 90 days.
• Budget for overruns. For new construction, lenders often require a 10 percent contingency fund within your budget. Ensure your equity injection covers your share of this cushion.
• Experience matters. If you are a first-time operator, lenders may require a higher injection to offset the perceived operational risk.

By coming to the table with a clean, well-documented equity stack and ample liquidity for the lease-up phase, you position your self-storage venture as a low-risk, high-reward opportunity for the bank. To learn more or connect with a member of our team, visit liveoak.bank/self-storage.