I’m going to do it!
I am going to get an SBA loan.
I don’t care where you are in growing your self storage business; if you are getting bank loans as opposed to non-recourse CMB loans, it can be tough.
Sometimes the more loans you have, the harder it is to get another.
The biggest challenge I’ve had is buying out of state. The lenders who know us don’t want to go to Texas or Florida, and the banks down there don’t know us.
The larger banks are challenging to work with and often the relationship component doesn’t mean that much with the big banks.
So I’m going to do it.
I applied with Terry Campbell at Live Oak Bank for a SBA loan.
[By the way, Terry and I are hosting a live webinar on Tuesday, May 24, 2016 at 2 PM. If you’re interested in finding out if a SBA loan may be right for you, REGISTER HERE.]
I’m here to tell you that it can be challenging getting financing no matter how big you get.
I’ve often said “I wish they had SBA loans when I got started in the self storage business.” Then I wondered why? If it would be good when I got started, why wouldn’t it be good now?
Initially I had a lot of reasons I thought an SBA loan wouldn’t be a good idea – like the additional costs and the fact that I would have to make a larger down payment than most SBA barrowers.
But I finally got the REAL benefits of SBA loans for self storage. And the benefits remain the same no matter how many facilities you own.
I realized that:
- working with a bank that will follow you anywhere is worth the cost of an SBA loan.
- having the federal government guarantee a portion of the loan to the bank that will follow us anywhere is worth the cost of an SBA loan.
- having a self amortizing loan longer than 20 years that I can refinance at any time I want is worth the cost of an SBA loan.
- being able to finance more than just the real estate – the furniture, fixtures, and equipment – in the loan is worth the cost of an SBA loan.
- having a lender who truly understands self storage so that I don’t have to educate them about the industry is worth the cost of a SBA loan.
For where we are in our growth, I truly think an SBA loan has a lot to offer. I’ll keep you updated and let you know how it goes, but so far, I haven’t been disappointed.
So where are you in your growth?
Financing is challenging no matter where you are. However, as you can see, I am changing my mindset about it. What I’m really starting to understand is that in financing, as in all aspects of life, everything is temporary. My solution today is only temporary. There are no permanent solutions.
Especially to self storage financing.
But my current solution may be one I can use for a while. Not forever, but let’s see how well this works at this stage of our self storage growth.
In our business model, the financing plays an important role. I try to keep my cost of capital at 8% or less and the return on the project 8% or better. If we are paying a preferred return above the 8% on the equity portion of the deal, then I must make the difference up on the debt. The spread between the cost of capital and the facility’s net cash flow is the wealth creation portion of the deal.
If we can create a spread on each deal we do, well…that’s the game plan. Create a model that works, then rinse and repeat.
I just wish I didn’t have to go back to the drawing board for every deal and every loan. But, someone said “You can tell the quality of your life by the quality of your problems.”
I need to read that book again.
