Table of Contents
Short answer: Most people getting started use bank or SBA loans (7(a) or 504). Experienced sponsors with a track record, high-net-worth guarantors and a larger project may use private debt capital groups. Seller financing and bridge loans can also help close a gap.
The main options #
- SBA 7(a) and 504 loans. Often around 20% down at minimum, and more when debt coverage requires it. A benefit Mark values on development deals is access to interest reserves and negative cash-flow funding during lease-up.
- Traditional bank loans. Often 25–35% down on new construction or conversions, sometimes more for deals that don’t cash-flow enough early on.
- Private debt capital groups. Mark has used one on a large development. They typically expect a track record, high-net-worth sponsors and a sizable project.
- Seller financing or bridge capital to bridge part of the gap.
A note on SBA timing #
On one deal Mark learned that an SBA loan doesn’t have to close before rates move to keep its terms: once the lender submits a complete package and the SBA assigns a loan number, the loan doesn’t have to be re-underwritten if rates rise. Confirm how this applies to your loan with your lender.
Related answers #
- How much money do you need to get into self-storage today, and how does debt coverage affect it?
- Should you raise money for a self-storage deal from partners or investors?
- How does a self-storage syndication work?
Source: Mark’s posts How Much Money Do You Really Need to Start in Self-Storage? and What the Jobs Report, CPI, and Bond Market May Be Telling Us About Interest Rates
