SBS Loan for Self Storage

[Matthew Stapleford]

Has anyone ever purchased a self storage facility using an SBA loan? If so, would you recommend it over a conventional commercial loan? I am looking into buying a self storage facility and am weighing my options for financing. Thanks!

[Michael Wagner]

This is the stereotypical "it depends" answer.  There are pros and cons to SBA loans.  Generally speaking, an SBA loan will cost a bit more than a Conventional loan so I only use them on properties that are harder to get a conventional loan on (low occupancy, short seasoning period if a refinance, etc).  The other downside to an SBA loan is that they usually have harsher pre-payment penalties so if its a turn-around property that you want to refinance within 2-4 years, the SBA will take a bite out of you (Usually 5% year 1, 4% year two, etc until the 5 year mark).

The SBA also adds a bit of Bureaucracy to the process so you want o be sure that you are using a bank that has done A LOT of SBA loans...don't be the person that the bank "learns the SBA" on....that will be painful.

SBA will also (generally speaking) let you go up to 90% where traditional loans are usually in the 80% range. That could be good or bad depending on your investment objectives. Are you looking to grow aggressively or do more modest LTV's satisfy your objectives?

Perhaps I can offer some more definitive insights if you share more about your situation...why are you considering SBA? Have you looked at conventional?  I'd pursue both (up until the point of costing you money) so that you can make a direct comparison between the two.

Hope some of that helps!

Mike