Self Storage & SBA Loans?

Question

I read that self storage has recently qualified for 90% CLTV loans under SBA 7(a). While this is appealing, I'd prefer to hire a manager to run the property. My question is this: would I still qualify for an SBA loan for my self storage business, even if I myself am not the one managing the business on a daily basis?

Michael Wagner · Answer

I've spent the better part of the last two years working with Storage SBA Loans and Thought I would share a little known fact here even those this thread's been idle a while. Perhaps someone will find it helpful. Most folks (including SBA lenders) will tell you that an SBA loan cannot be refinanced with another SBA loan. Please know that this is categorically false. In order to do so, all one must do is find an SBA bank that is willing to do the refi based on the merits of the deal and take the terms offered to the SBA lender with the current mortgage in place. Give them right of first refusal. Their only option will be to either do the refi for you at those terms or lose you to the other bank. If they say no, simply ask for a denial in writing and go back to the willing bank. Regardless, you'll get to refi an SBA with an SBA.

Dan Seavey · Answer

@Michael Wagner I am working on putting together an offer on a storage facility through an SBA 7a. Do you have any advice or tips of how to make this run smoothly and to put the least amount of money down out of my pocket? The facility is 410K, the bank will contribute 50%, SBA 40%, and 10% down. Is there an alternate route to avoid the 10% down (41K)? Also I am confused as to what you are stating here that an SBA loan can be refinanced with another SBA? Any advice is appreciated.

Ben Bakhshi · Answer

@Dan Seavey , you might want to apply for some Balance Transfers with your current or new credit cards. With good to great credit, you could get 2-5% (including fees and interest) for 12-18 months. You can then deposit those balance transfers into your checking account. Check out fatwallet.com/finance for more info.

Michael Wagner · Answer

@Dan Seavey My experience with SBA's loans has been overall pretty good but it is cumbersome...more so than typical bank loans. That being said, I believe 10% is the minimum down that you could realistically expect...... With the 10%, you will also need a POLISHED Business Plan to submit to the bank. I'm sure I have some that you could use to template from if you would like. As for my comments about refinancing an SBA with another SBA, I was referring to a situation where you already own a facility with an SBA loan on it and are looking to refinance (to pull equity or fund expansion etc.). Most banks don't think that SBA loans are eligible to be refinanced with another SBA loan but as previously posted, this is not the case. And please excuse the unsolicited interjection of advice but I have read your other storage related posts about this facility and I have to agree with Scott Meyers that 6% is not something to get too excited about. I understand that you are not in search of a windfall here but if you are borrowing close to 100% of the money at current SBA rates (5-6%) and are buying a facility that is valued at a 6 cap....won't you be lucky to break even each month? Given a 410K purchase price and a 6 Cap, that means the NOI on the facility is roughly 25K. A 369K loan at 5% over 25 years would require annual debt payments of $26K. This means your on the wrong side of zero. For a leveraged facility to produce appreciable positive cash flow, you need the cap rate to exceed the interest rate on your debt. I say this not to be argumentative but just to bring your attention to the concerns that come with hefty leverage and low cap rates. As a buyer, if you and your subject property can survive the unbiased, third party assault of us on BP, you know you'll have a deal:) Happy to answer any other questions you might have. Perhaps even connecting on the phone might be useful? Mike

Travis James · Answer

@ Dan Seavey Can you share your SBA 7a loan experience?

Michael Wagner · Answer

@Dan Seavey , I wish I had a better answer for you but I recall you saying that friends and family were not an option for you. That is unfortunate as they can be a great source of funding. I'm afraid I would'nt have any other options to offer you other than to tell you to find the money. Can you do some wholesaling for a year to come up with the money? Even if this property still isn't around, you'll still have a bunch of cash to go to work with. Or perhaps you need to look at other deals...ones with owners who are more motivated and therefore willing to hold paper. Wish I could be more help. Mike

Dan Seavey · Answer

@Michael Wagner I have made an offer to the seller of full asking price ($410,000) and he is still not interested. He wants a traditional bank loan and to be paid off on sale, which I understand completely. He has had multiple offers but nothing he likes, and will not sell because of the cash flow. I am having trouble coming up with the down payment (37K plus closing costs/etc). Any other options or an idea of where to find help with a down payment? Thanks, Dan

Michael Wagner · Answer

@Derek Carroll - I'd love to get together for coffee or something. Always up to talk RE.... As for the 6 Cap, I wouldn't consider something in that range and after further investigation, neither would Dan. He had accidentally pulled debt service out of his Gross so he was working with an inaccurate NOI. UPon making this correction I think it came in at an 11 Cap or so. Anyways, My schedule is open most days except Monday. LEt me know when your schedule allows some coffee.

Derek Carroll · Answer

Michael Wagner we should get together and chat. I'm also in victor. My first thoughts are that a $400k self storage probably isn't trading at a 6% cap. Even The larger ones that I've worked on financing for aren't valued that high. Are you really paying that for the ones that you're buying?

Brian Burke · Answer

Yes.