Securing financing for your self-storage business can be a challenging process. But with a solid business plan and market knowledge, you can make the right financing choices. Your specific funding needs will depend on your business model, location, and scale. To finance your self-storage business, we recommend these three simple steps: 1) Prepare your business plan 2) Determine how much funding you need 3) Explore your financing options. Whether you are buying, building, expanding, or renovating a self-storage facility, it will take time, energy, and money. Luckily, the payoff can be large in our continually growing industry.
When starting a self-storage business, it’s key to develop a comprehensive business plan before you consider your financing options. Start by creating a detailed plan that outlines your vision, target market, marketing strategies, operational costs, and financial projections. Preparing a business plan for your self-storage business is a crucial step in setting a clear direction for your venture. Plus, it will help lenders understand your business and figure out whether they want to invest in it. Having a well-thought-out business model before either buying or building is key to your success as a new self-storage business owner. You should think about a plan for everything from your gate security to your unit mix and management style. Here are some key questions to ask yourself when developing your self-storage business plan:
- What is your vision? Outline the specific services and facilities your self-storage business will offer. Describe your self-storage business in detail, including its unique features and how it will stand out from competitors.
- Who is your target market? Pull information from your feasibility study, such as your target market, demographics, and local storage needs. Evaluate the competition and assess their strengths and weaknesses.
- How will you market your business? Define your marketing and sales approach. Describe your advertising, promotions, and pricing strategies. Include a plan for managing customer relationships and generating repeat business.
- How will you run your business? Explain the operational aspects of your self-storage business, such as facility layout, staffing requirements, and processes for renting and maintaining storage units. Detail your management structure and responsibilities.
- What are your financial projections? Supply financial forecasts for your self-storage business. This includes a sales forecast, projected expenses, and predicted profitability. Most lenders will want to see a business plan before extending a loan.
One of Boxwell’s partners, Live Oak Bank, is a great resource for information about financing your self-storage business. In a panel discussion with Live Oak Bank, Cat Littell of Halstatt Legacy Partners reminds us that, “Your financials are a story of how you plan to operate your business.” To set yourself up for long-term success, be sure you have your financial plan set in place.
Your business plan (along with your feasibility study) will serve as the foundation for figuring out your funding requirements. They will help you know how much money you need to start and run your new self-storage business. There are several factors to consider, including the size of your facility, the location, the cost of land or property, and the cost of construction, equipment, renovation, or added storage units. What is the square footage of the facility you want to buy or construct? You will need to estimate the cost per square foot to build a self-storage unit in your area. If you plan to build your facility, you will need to calculate the cost of construction, including materials, labor, permits, and any necessary architectural or engineering fees. If you plan to buy an existing space, you need to figure out the cost for relocatable storage units, fencing, and security to get the space ready for your business.
Then, you start looking at your upcoming operational expenses. Whether you are buying, building, expanding, or renovating, you should be able to estimate these expenses for at least the first year of operation. Next, figure out the revenue potential for your new self-storage business. This will help you forecast your income and cash flow. By following these steps and conducting research, you should be able to develop a realistic estimate of the funding needed for your new self-storage business. Remember that it’s essential to allow for some flexibility to adapt to changing circumstances (hello pandemic).
And as always, we recommend using resources to help. Did you know that there are several financing teams who specifically work with self-storage businesses? Consider consulting with an accountant, business advisor, or industry expert who can supply valuable insights and help you refine your financial decisions. There are also online resources to help you along the way. Check out this Storage Pug Gab Focus session, for example. Discover self-storage market trends, learn how to navigate market growth, and decide when it may be time to get in, get out, or stay put!
There are several financing options you can explore when starting a self-storage business. Loans are certainly a good possibility, and many entrepreneurs turn to banks for financing. In addition to financing your overall business, some banks specialize in financing equipment purchases for businesses. They may offer competitive rates and flexible terms tailored to your needs. Be sure to research and compare different equipment financing companies to find the best fit for your self-storage facility. You may even use a combination of financing options to get your self-storage business rolling.
Conventional Bank Loans:
A conventional bank loan can provide you with the necessary capital to get your business off the ground. To qualify for a loan, you’ll need a solid business plan, good credit, and collateral to secure the loan. If you are expanding or renovating an existing self-storage facility, a conventional bank loan is an excellent choice. Some examples of self-storage business expansion or renovations include adding added storage units, replacing roll-up doors, painting, adding new security systems. In these instances, it’s easy to apply for financing through a bank where you have a relationship. This can often speed up the lending process for qualified borrowers.
There are also Small Business Administration (SBA) loans, which are great for self-storage businesses. The SBA offers loans to small businesses who may not qualify for traditional bank loans. Often used for commercial real estate and new construction, SBA 7(a) and SBA 504 loans are designed to help small businesses in obtaining funding for various purposes, such as starting a new business, expanding existing operations, or buying assets. With repayment terms of up to 25 years, businesses can fund a major project and spread payments out over a long time. They also enable businesses to finance construction interest charges and up to two years of loan payments into the loan amount. SBA loans have lower interest rates and longer repayment terms, making them an attractive option for many entrepreneurs.
SBA 7(a) loans are the most popular self-storage facility loans. 7(a) loans can range from as low as $500 to a maximum of $5 million, depending on the borrower’s needs and the lender’s policies. The SBA guarantees a percentage of the loan amount, which varies based on the loan size. The maximum length of this type of loan is 25 years. Among the SBA 7(a) options are standard and small loans. A standard 7(a) loan offers as much as $5 million. Meanwhile, what’s known as a 7(a) small loan supplies up to $350,000.
SBA 504 loans can be another practical choice for businesses in the storage industry. These loans are specifically intended to help small businesses in buying fixed assets, such as relocatable storage units and major equipment. SBA 504 loans are often used for constructing or renovating buildings, buying machinery, or refinancing existing debt associated with a facility’s fixed assets. 504 loans involve three parties: a certified development company (CDC), a lender (often a bank), and the borrower. The CDC typically supplies 40% of the loan, the lender contributes 50%, and the borrower handles the remaining 10% as a down payment. Terms are 10 to 25 years, with the loan amount usually capped at $5 million.
While SBA loans have favorable terms and lower down payment requirements compared to traditional loans, they still involve a thorough application and underwriting process. We can’t stress it enough that it is a good idea to consult with a financial advisor or accountant to ensure you make the most informed decision for your self-storage facility. And it’s particularly useful to find a lender who is well-versed in the self-storage industry to point you in the right direction. At Boxwell, we know the value and benefits of developing trusted relationships and have several trusted partnerships. https://boxwell.co/our-partners/
Investors and Partners:
Outside of loans, there are other methods for financing your self-storage business. For example, you can consider teaming up with other investors to buy or build a facility. This can be done through a debt partnership, which is a lending relationship that does not assign an ownership stake to the person or entity from whom you are borrowing the money. There are also equity partnerships, with each partner chipping in a certain amount of cash and owning a share of the business. And there are joint ventures where each partner owns a certain percentage of the business. Of course, if you are fortunate enough, you can finance your new self-storage business yourself!
Be sure to meet with a financial advisor who specializes in small business financing. They can help you understand your financing options, review your financial projections, and supply advice on how to secure funding. And just how do you choose a lender for a self-storage loan? We recommend looking for a lender who offers the following:
- Experience working with self-storage businesses
- A streamlined loan approval process
- Low down payments
- Competitive interest rates
- Several lending options
Once you’ve found a suitable funding option, you’ll need to complete the loan application. This typically involves supplying personal and business information, details about your self-storage business, financial statements, collateral information, and any other documentation required by the lender. Be thorough and accurate in your application to increase your chances of approval.
When starting a self-storage business, the easiest and most cost-effective choices can be the most solid. And financing your business doesn’t have to be complicated. The future of storage is looking good, and it feels like it’s going to continue to grow. Whether you do the research yourself or get some help from industry experts, the more information you gather, the better prepared you’ll be. We hope you enjoy our content series on, “How to Start a Self-Storage Business.” Look for more information in our next post. In no time, your site will be transformed into a revenue-generating storage business!
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When building Boxwell, Rod Bolls set out to create a company that prioritizes a balance between working hard and playing hard. He aligns a strong business model with a strong team and a sustainable work environment. To achieve an ideal company culture, Rod nurtures every relationship. For example, this includes customers, partners, vendors, local non-profits, neighborhood sports teams, and museums. Our products include drive-up self-storage units, relocatable self-storage units, portable storage containers, moving containers, and restoration containers.
Boxwell units can help you increase your business’ revenue-generating space with units in a variety of sizes, including our new 10 x 20 units and our 8 x 20 units. Our portable containers and relocatable self-storage units are flexible, stackable, and beautiful! Boxwell is here to ensure that our products help you achieve your business goals.