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Financial Fuel: Using an SBA Loan to Expand Your Self-Storage Business

Expanding your self-storage business, whether through facility acquisition, renovation or new construction, can be a great way to build a portfolio and generate more revenue, but what’s the best way to pay for it? A Small Business Administration loan may be a viable option. Explore the benefits and how this money can be used to fuel growth.

Anna Taylor

July 7, 2023

4 Min Read

If you’re in the market to expand your self-storage business, whether by buying a new facility, renovating an existing one or building new, consider the benefits of a Small Business Administration (SBA) loan. When coupled with a well-defined, strategic approach, this financing can be ideal to help you enter an untapped market or generate new revenue streams.

In fact, there are many potential uses for a business-expansion loan, including:

  • Acquisition of a competitor or related business

  • Opening a new location to expand your footprint

  • Renovating an existing location to operate more efficiently

  • Entering a new market to boost your customer base

  • Purchasing new equipment to improve your operation

An SBA expansion loan offers flexibility and favorable terms because lenders can easily use your existing business’ historical performance as the basis for their decision. Plus, for an established self-storage operation vs. a startup, there are no minimum equity-injection requirements, which means you can get up to 100% financing.

Depending on your goals and path to expansion, there are multiple options to consider. SBA loan programs like the 7(a) and 504 are designed for established businesses and based on cash-flow analysis. Each has its own set of benefits, uses and dollar limits. In some scenarios, depending on your capital needs, you might combine an SBA product with a conventional loan. It’s helpful to consult with a knowledgeable lender that can consult with you on the best loan type and approach for your situation.

Expansion Through Acquisition

Purchasing an existing facility is a common way to expand a self-storage portfolio. The strategic acquisition of a competitor, for example, can be the key to gaining market share, cross-selling to customers and increasing price power. That said, the following criteria must be met for a purchase to be considered a legitimate business expansion in the eyes of the SBA:

  • Your existing business model needs to be similar to that of the target (i.e., another storage facility).

  • Your existing operation must have been in business for at least one year.

  • Your business needs to be the borrower as well as the buyer. If you’re making the purchase under a new entity, your existing self-storage business and new entity need to be co-borrowers.

  • If a new entity will be created, it must have the same ownership structure as the existing business.

Expansion Through Building

As we know, acquisition isn’t the only way to expand a self-storage business. You can also use SBA financing to open a new location and enter a new market or renovate an existing facility. The main benefit in these cases is the minimal down payment (sometimes zero), subject to credit approval. As an established business owner, you aren’t required to contribute a large amount of cash up front. This means more money in your pocket and solid cash flow.

In addition, lenders may offer an attractive maturity rate of up to 25 years, plus the construction period. As a borrower, you may also be able to set up an interest reserve for the construction phase of your project. This means a portion of the proceeds will be set aside to pay for interest during construction—say 12 months—so you don’t need to worry about payments during that time.

An interest-only period may also be available to help ease the project through construction and lease-up. This can help when a facility needs to ramp up its cash flow before taking on the full principal and interest payments. Working capital can also typically be built into the loan to help cover expenses until the facility can support debt purely out of business cash flow.

Form a Strategic Plan

When it comes to self-storage business expansion, it’s crucial to ask yourself the right questions to determine if now’s the right time. Applying for an SBA or any other loan without a fully baked plan is unwise, so take time to strategize. Of key consideration is your ability to manage anticipated growth by addressing the following:

  • Ensure that your cash flow is stable enough to support additional debt, now and in the future.

  • Understand how you’ll use the funds for growth, and have a clear plan to help you execute that strategy.

  • Identify a pattern of growing demand. Without increasing sales and customers, a business-expansion loan may not make sense.

Once your strategy is fully defined, reach out to a bank with expertise in self-storage and SBA lending to help determine the best program to fit your needs.

Anna Taylor is a vice president and head of self-storage financing for Live Oak Bank, a subsidiary of Live Oak Bancshares Inc. Headquartered in Wilmington, North Carolina, the company serves small business owners in all 50 states. Anna joined the company in 2013 as a loan officer. With a background in credit and financial analysis, she’s committed to helping clients navigate the loan-application process. For more information, call 866.518.0286.

About the Author(s)

Anna Taylor

Loan Officer, Live Oak Bank

Anna Taylor joined Live Oak Bank in 2013. She was a dedicated credit officer for more than a year before joining the self-storage team as a loan officer. With a background in credit and financial analysis, Anna is committed to helping clients navigate the loan-application process. A graduate of the University of North Carolina at Chapel Hill, she earned a degree in advertising and completed the Minor in Entrepreneurship Program. She enjoys playing tennis and spending time with her beloved Golden Retriever, Griffin.

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