What should you consider when you are ready to apply for a loan?

When you are applying for a loan, there are several things that you need to be mindful of because your lender will certainly be looking at each of these areas. You need to be realistic about your credit and your cash reserves. You need to evaluate your debt to income ratios as well as your experience level. If you aren’t experienced, consider bringing in a partner who is. Have you done your due diligence? Does that feasibility study say that this is a great opportunity? Finally, how long have you known your banker? Will they fight for you during loan committee?

Let’s break this down a little. When you are applying for a self-storage loan, you need to know that banks are going to look at your credit, especially if you are applying for an SBA loan. They don’t want to see skeletons in your closet like bankruptcies or foreclosures. They want to know that if they lend you millions of dollars, you are going to pay it back. Despite common beliefs, banks do not want to own property, they are in the lending business, not the real estate business. If you have skeletons in your closet, it may make it more difficult to get a loan if not impossible.

Secondly, they want to make sure that you are in a good position to get your property up and running. One way that they do that is to make sure that you have cash reserves. These reserves allow you to make the payments for the first few months while you are getting your self-storage property up and running.

Third, while banks are looking at one property, you need to understand that they are not going to just evaluate that great deal. They are going to look at your portfolio as a whole and do what is called global underwriting. They want to make sure that you are solid overall not just with this self-storage property. If you have a bunch of projects that are not doing well, that will raise a red flag with the bank.

Experience and your relationship with your bank really do make a difference in whether or not your loan is going to get approved. Start building those relationships today. If you are new to self-storage investing you might need a partner who has experience for your first few deals. Once you have established your own credibility as a self-storage investor then you can branch out on your own.

Your feasibility study is so critical. Not only does it tell you whether or not you have a great opportunity in this property, it also shows the bank that you have found a safe investment. You can do a ton of due diligence on the self-storage facility, but the bank want’s third person verification to make sure that you have not overlooked anything.

When you talk to your lender, don’t be afraid to ask them about each of these things. The better you understand what your bank’s expectations are, the better you will be able to meet those expectations. You want to get your project approved and knowing what hoops you need to jump through is the best way to do that. As always, happy investing.