The 4th Rule of Thumb & and SBA Loans

One of the greatest gifts to self-storage investing is the SBA loan. This loan is designed to help small businesses purchase real estate. If you are going to be getting a loan for your self-storage facility, you want to consider an SBA loan.

The first thing that you need to know about SBA loans is that you need a lender that specializes in SBA loans. You don’t want someone who is just learning about them to take your loan. You don’t want to do a friend a favor and let them learn on you. You need a pro. You want someone who knows exactly what to say to the loan committee to get them to approve your project. If you are working with someone who is an expert in SBA loans then they will know what they have an appetite for. They will know if you even have a shot before you spend thousands of dollars and hundreds of hours working on due diligence.

The requirements for this loan are similar to other conventional loans. You have to have a good credit score, you cannot have had any recent bankruptcies, foreclosures, or tax liens. You have to be able to show that you will be able to make the payments. However, what makes these loans fantastic is that you can purchase your self-storage property with as little as 10% down.

Another requirement by SBA is that you have to meet the definition of a small business, you have to fit within their profit guidelines, you have to be a small business and finally, you must be a US Citizen or a legal resident alien.

The maximum loan amount for an SBA loan is currently $5 million. This matters if you are looking at properties over that amount. However, if you are looking under that amount, this is a great opportunity.

The way that an SBA loan works is that you put down 10%, the bank lends you 50% and SBA covers 40%. The bank portion is at current market rates and has to be refinanced every few years. The SBA portion is amortized for 25 years and typically the interest rate is below what you will get on the other 50%. You do not have to refinance this loan. It is locked in for the entire 25 years.

There is a pre-payment penalty on SBA loans so be sure to talk to your lender about that if your game plan is to buy and flip the property. SBA loans are a great way to spread your cash and your investors’ cash over multiple properties. If you haven’t looked into SBA loans, start now. Find an SBA lender and see if you qualify. As always, happy investing.