A self-storage property can be financed using a number of different methods. Utilizing government-backed loan programs is a choice that is frequently overlooked but has the potential to be very beneficial. In comparison to conventional commercial loans, these programs may offer borrowers reduced interest rates, longer loan periods, and more lenient underwriting standards. This blog post will go over some of the government-backed lending programs that are available for financing self-storage properties as well as how to use them to your advantage.

Small Business Administration (SBA) Loans

A federal organization called the Small Business Administration (SBA) offers loan guarantees to financial institutions that give loans to small enterprises. SBA loans are a well-liked choice for funding self-storage facilities since they provide longer loan terms and need lesser down payments than conventional business loans. The 7(a) loan program, which can be used for a number of commercial objectives, including the purchase and refinancing of real estate, is the most well-known SBA loan program.

Your self-storage facility must be categorized as a “small business” under SBA size guidelines in order to be eligible for an SBA loan. The SBA size criterion for self-storage properties is based on annual revenue, albeit these standards vary by industry. A self-storage facility is often regarded as a small business if its yearly revenue is under $41.5 million.

Borrowers must also have strong credit and be able to put down a minimum of 10% in addition to meeting size requirements. SBA loans often have 6% to 10% interest rates and periods as long as 25 years.

USDA Business and Industry (B&I) Loans

An additional government-backed lending program that can be utilized to finance self-storage properties is the USDA Business and Industry (B&I) loan program. These loans can offer borrowers long-term, fixed-rate financing for real estate acquisition, building, or refinancing. They are intended to promote rural enterprises.

Your self-storage facility must be situated in a rural area, which is defined as an area with a population of fewer than 50,000, in order to be eligible for a USDA B&I loan. Borrowers must also have acceptable credit and be able to put down a minimum of 10% in addition to the geographical requirements.

Loan lengths of up to 30 years are available through USDA B&I loans, which offer interest rates that are often lower than those of commercial loans. Additionally, borrowers can use these loans to refinance existing debt, which can lower their monthly payments and increase their cash flow.

HUD 221(d)(4) Loans

Government-backed loans can be obtained through the Department of Housing and Urban Development (HUD) 221(d)(4) lending program for the purpose of building new multifamily homes or doing significant renovations to existing ones, including self-storage facilities. These loans can offer customers up to 85% loan-to-cost financing and long-term, fixed-rate financing for up to 40 years.

Your self-storage facility must meet specific criteria, such as having a minimum of five units and being situated in an area where affordable housing is needed, in order to be eligible for a HUD 221(d)(4) loan. Additionally, borrowers must be able to contribute a minimum of 3.5% equity and have experience in real estate development and management.

Compared to conventional commercial loans, HUD 221(d)(4) loans provide competitive interest rates and longer loan periods. Additionally, these loans can be used to fund the development of new self-storage facilities, which is an excellent choice for investors looking to diversify their holdings.

Utilizing loan programs backed by the government can be a good way to finance your self-storage facility. Compared to conventional commercial loans, these lending programs provide lower interest rates, longer loan durations, and more flexible underwriting standards.

Borrowers must fulfill certain criteria, such as having good credit, making a down payment, and meeting size or location standards, in order to be eligible for these loan programs. You should engage with a lender who has experience with these types of loans because the application procedure for government-backed lending programs can be more demanding than for conventional commercial loans. But for self-storage property investors looking to maximize their returns and expand their portfolios, the advantages of these loan programs may make the effort worthwhile. Therefore, if you’re looking for financing for a self-storage property, make sure to look into all of your options, including loan programs backed by the government.

F2H Capital Group is a debt advisory firm specializing in negotiating the best terms for your commercial real estate projects. The company offers a range of financial products and services, including fixed loans, bridge loans, and construction loans across all asset types. Please contact us for any of your financing needs.