Financing A Facility

SBA 7(a) Loan Offers Ideal Option For First-Time Self-Storage Owners

When Jennifer Perkins decided to open a storage facility just west of Nashville, Tenn., she spoke with many banks in her quest for financing. Ultimately, everything pointed her to the SBA 7(a) product.

The SBA 7(a) loan program was a good fit for two main reasons. First, Perkins didn’t have the money that most lenders require to secure the massive loan she needed for the project. The SBA loan would allow her to use the land she owned as her equity injection into the loan.

This was a game changer. “The value of my land covered the entire equity injection required and then some,” says Perkins. “That is the only thing of value I had to put into the loan, and I was going to have to get an equity partner otherwise, so it was an easy decision for me based on that factor alone.” 

The second issue for other loan products was that she didn’t have any experience developing land for self-storage. The SBA loan allowed her to use the feasibility of the project—rather than her own experience—with a combination of factors indicating she was a sound borrower to qualify for the loan. “This loan is a really fantastic way for someone with a good work ethic and great idea to get their project going,” Perkins says.

The loan was for the ground-up construction of phase one of her self-storage facility, Synergy Storage, LLC. This phase includes all site work for a 3.71-acre site and the construction of 223 drive-up, non-climate-controlled units as well as boat and RV parking. Phase one has a net rentable area of 31,350 square feet with an on-site office. Her plans for phase two include a climate-controlled building, which she also plans to finance through an SBA loan. 

Easier Than expected

Although Perkins was initially skeptical of the SBA loan process, she ultimately found it to be much simpler than she anticipated.

“When I discussed with others in the industry that I was seeking an SBA loan they would say things like, ‘There’s so much red tape; I’ve never heard of anyone actually getting approved.’ So, I was really nervous that I was going to invest a lot of time and potentially all of my money in that route, only to fail and have to start all over,” admits Perkins.

This turned out to be far from the reality of the situation. Perkins discovered Live Oak Bank, a lender that made the process seamless. Live Oak has a unique approach to funding small businesses by focusing only on specific industries, employing lending teams who have experience and a vast knowledge of each industry, including self-storage.

Perkins says there were a lot of advantages to working with Live Oak. “The first thing that was appealing to me was that they don’t charge an origination fee. For comparison, another bank I had considered using was going to charge me $26,000 with no added value,” she says. “Everyone at Live Oak was also very easy to communicate with and extremely knowledgeable about the SBA requirements. They are known as the self-storage lending experts, and they really are.”

Live Oak differs from traditional lenders by acting as more of a partner for the life of the loan, rather than just a lender. Bank personnel draw from their industry knowledge and experience to offer advice to clients above and beyond the lending portion. Perkins found that this was indeed the case in her experience.

“After I left the title company at closing, I had a text or voicemail or email from every single person I’d dealt with at Live Oak congratulating me, and that was such a special moment because I really felt like I was part of a team and not just a client,” Perkins adds. “I still feel that way. Even eight months into the loan, with the phase almost complete, I know I could call anyone from Live Oak to ask for help or suggestions and they would be happy to help me.”

Synergistic Opportunity

Perkins, who is also an insurance agent, got into the self-storage business when she bought a home to flip. Adjacent to the house was a vacant lot with commercial potential, so she had it rezoned for commercial use. The highest and best use of the lot was self-storage, she says.

She didn’t anticipate just how great the demand would be. “At the time, I didn’t realize it was such a popular investment. I was just doing what made the most sense,” Perkins says.

Her feasibility study showed that the facility should stabilize faster than average. Prior to opening the facility at the first of the year, she already had units reserved.

There was a need for new storage in her location. Most of the existing facilities are older and do not have on-site managers or an online presence, making it difficult for clients to reserve a unit or get information without actually going to the facility first.

Plus, the area is growing. Perkins says, “There’s lots of growth in this area. Big manufacturers continue to move in bringing in more residents. New homes are being built everywhere, and new schools are being built—all good indicators of growth and need for commercial development.”

She’s already eyeing future projects. “The project I’m doing now is a two-phase project, and the second phase will be almost as big as the first. After that one stabilizes, I hope to already have another site ready for development. I’m currently looking into two other potential sites.”

In her future endeavors, Perkins plans to return to Live Oak. “I’ve met with many banks since then, and I’ve yet to find one I would consider over Live Oak for self-storage financing,” she says.

Advice For First-Timers

For other first-timers looking to enter the market, Perkins shares from her experience. In conducting the initial due diligence, she says, “First, you need to start with market research in the area you’re looking to build. Call around and find occupancy rates at other facilities in the area. Find out if the area is likely to continue growing—new homes, businesses, schools, etc. Call your government offices—planning and zoning, city officials, mayor, etc.—and get their take on adding self-storage. Find land you can afford and see what the process is to rezone it, or find land already zoned for self-storage use. Make sure the land is in a high traffic area—either on a commuter road or in a densely populated area.”

After taking these steps, she says, “You’ll need to hire a feasibility consultant to do a preliminary study for you. Not only do most banks require a feasibility study, but you will also use this to determine how big your facility should be. You don’t want to oversaturate the market, and you don’t want a project that turns upside down because you didn’t realize all of the operating costs or what you should charge to rent your units.”

Perkins also recommends tapping into organizations. “Join your local self-storage association,” she says. “Not only will those people be as passionate about self-storage as you, but they’ll also be able to help you answer your questions and connect you with the resources you need to get your self-storage project going.”

The self-storage industry is special because there are so many resources for information and support. “There are groups locally that will gladly help in all aspects, and there are nationwide meetups with likeminded folks who will gladly offer their advice,” notes Perkins.

She especially likes the flexibility of the industry. “For instance, you could have a facility that has many income streams such as supply sales or truck rentals and have multiple employees,” Perkins says. “You can hire a third party to manage your facility, or you can even get a kiosk and have no one at the facility. There is no one ‘right way’ to do self-storage as far as I’ve seen, and I like that it’s continually evolving, and that I can tailor my project to meet my needs. That makes it unique and fun.”

Terry Campbell is general manager for the self-storage lending division of Live Oak Bank, which offers financing for self-storage facility acquisitions, construction, expansion, refinancing or renovation. He has more than 23 years of self-storage industry experience as a supplier as well as having ownership in self-storage projects. Terry has served on the board of the North Carolina self-storage association and speaks at tradeshows, seminars, webinars, and frequently provides articles for publications.