Using Section 504 Loans to Construct or Acquire Self-Storage Facilities
Self-storage has mushroomed into a massive sector in the United States over the course of the past few decades. Today, a self-storage facility can be found in almost every town in the United States.
According to The SpareFoot Storage Beat, as of 2020, the self-storage industry generates $39.5 billion in annual revenue, growing over 3.5 percent per year.
Because of this growth, now is an excellent time for entrepreneurs and would-be business owners to investigate getting into the self-storage business.
SBA 504 loans could be an excellent option for them to acquire the capital they need to build their own self storage facilities.
HOW SELF-STORAGE FACILITIES OWNERS CAN USE SBA 504 LOANS
The SBA 504 loan program is designed specifically to finance the acquisition, improvement, and construction of new commercial buildings, in addition to financing the purchase and improvement of existing commercial properties. You can construct anything, from the most fundamental self-storage units to the most advanced air-conditioned buildings, using the proceeds from this loan. You can also use them to erect safety fences and monitoring systems, in addition to using them to acquire any long-term equipment that your company could want in the future.
THE BENEFITS OF SBA 504 LOANS FOR SELF-STORAGE FACILITIES
Owners of self-storage businesses love SBA 504 loans because the interest rates on these loans are fixed and have substantially lower interest rates than traditional SBA 7(a) loans. If you plan on holding the property for the long run, the SBA 504 loan is clearly the winner; however, if you are buying a value-add type of facility, then an SBA 7(a) may be worth taking a look at. There are pros and cons to both loans. Your best course of action, then, is to run your scenario by your qualified mortgage advisor.
THE RESTRICTIONS OF SBA 504 LOANS FOR SELF-STORAGE FACILITIES
On the other hand, it is essential to keep in mind that using SBA 504 loans is limited to the acquisition, improvement, and construction of commercial real estate, as well as the purchase of long-term equipment (defined as equipment that will be in use for at least 10 years.) Loans under Section 504 can't be utilized for operating capital (i.e., to pay temporary costs, such as marketing, disposable equipment, employee salaries, utilities, or general business expenses).
Consider applying for a different type of loan through the SBA 7(a) loan program or another SBA loan, such as the SBA express loan or even an SBA microloan, if you require funding for working capital. Both of these options are offered by the Small Business Administration.
Get the Help You Need
If you'd like to book a call to discuss your options in financing the construction or acquisition of a self-storage unit, click here.