Business Loans for Self-Storage Facilities: Acquisition, Construction and Expansion
Learn about financing options for self-storage businesses including acquisition loans, construction financing, and expansion capital.
Financing for Self-Storage Facilities
Self-storage represents one of the most attractive commercial real estate asset classes, with strong historical performance, recession resilience, and favorable operating characteristics. The industry generates over $40 billion annually with over 50,000 facilities across the United States.
Whether acquiring an existing facility, developing new construction, or expanding storage capacity, self-storage operators have access to multiple financing options. The asset class's strong track record and predictable cash flows attract competitive lending terms.
Common Financing Needs
Self-storage operators seek financing for various purposes.
- Facility acquisition from retiring owners or operators
- Ground-up construction of new facilities
- Expansion and additional building phases
- Climate-controlled unit conversions
- Facility upgrades (security, access control, paving)
- Working capital during lease-up periods
- Refinancing for better terms
- Portfolio consolidation and growth
Best Loan Products for Self-Storage
Multiple financing products serve self-storage facility needs.
| Loan Type | Best For | Amount Range | Typical Terms |
|---|---|---|---|
| SBA 7(a) | Acquisition, small facilities | $500,000-$5,000,000 | 10-25 years, 7-10% |
| SBA 504 | Owner-occupied facilities | $500,000-$5,500,000 | 10-25 years, 5-7% |
| CMBS/Conduit | Stabilized facilities | $2,000,000-$50,000,000+ | 5-10 years, 6-8% |
| Bank Financing | Established operators | $500,000-$20,000,000 | 5-15 years, 6-10% |
| Construction Loans | New development | $1,000,000-$20,000,000 | 18-36 months, 8-12% |
| Bridge Loans | Value-add, lease-up | $500,000-$15,000,000 | 1-3 years, 8-12% |
Qualification Requirements
Self-storage lending requirements vary by loan type and facility status.
| Factor | Acquisition | Construction | Refinance |
|---|---|---|---|
| Credit Score | 680+ | 700+ | 660+ |
| Experience | Preferred but not required | Required | Current ownership |
| DSCR | 1.25x minimum | Pro forma based | 1.25x minimum |
| LTV/LTC | 70-80% | 65-75% | 70-80% |
| Occupancy | 85%+ preferred | N/A | 80%+ preferred |
| Net Worth | 25%+ of loan | 25-50% of loan | Varies |
What Lenders Look For
Self-storage lenders evaluate specific factors beyond standard commercial lending criteria.
- Physical occupancy rate and revenue per square foot
- Market supply and demand dynamics (3-5 mile radius)
- Population growth and household density
- Existing and planned competitive supply
- Street visibility and accessibility
- Unit mix appropriate for market (climate vs. non-climate)
- Management platform and technology systems
- Rent rate positioning vs. competitors
Self-storage development has slowed in some markets due to oversupply concerns. Lenders now conduct more rigorous market studies before approving construction financing, particularly in markets with recent deliveries.
Construction Financing Considerations
Developing new self-storage facilities requires specialized construction financing.
- Typical construction costs: $45-$75 per square foot
- Construction timeline: 8-14 months depending on size
- Lease-up period: 24-36 months to stabilization
- Interest-only during construction and lease-up
- Draw schedule tied to construction milestones
- Permanent financing replacement at stabilization
- Personal guarantees typically required
- Pre-leasing not applicable like other commercial
Budget for 30-36 months of interest carry in your construction pro forma. Self-storage lease-up takes longer than operators often project, and running short on capital during lease-up creates financing stress.
Example Scenario: Facility Acquisition
An investor is acquiring a 45,000 square foot self-storage facility with 350 units. The facility is 88% occupied with annual revenue of $420,000 and NOI of $290,000. Purchase price is $3.4 million.
| Financing Component | Amount | Product | Terms |
|---|---|---|---|
| Senior debt | $2,550,000 (75% LTV) | SBA 7(a) | 25 years, 8% |
| Down payment | $850,000 | Equity | Required |
| Reserves/working capital | $75,000 | Personal funds | Recommended |
| Capex budget | $100,000 | Line of credit | For improvements |
Monthly debt service: approximately $19,600. With monthly NOI of $24,200, the facility maintains 1.23x DSCR with room for improvement through rent increases and occupancy optimization.
Example Scenario: New Construction
A developer is building a 60,000 square foot climate-controlled facility on owned land valued at $500,000. Total project cost is $4.2 million including land.
| Phase | Amount | Financing | Notes |
|---|---|---|---|
| Land contribution | $500,000 | Equity | Already owned |
| Construction loan | $2,800,000 (70% LTC) | Bank loan, 10% | I/O during construction |
| Equity required | $900,000 | Cash | Development equity |
| Interest reserve | $350,000 | Included in loan | 30 months carry |
| Soft costs | $150,000 | Included in loan | Permits, fees, contingency |
Upon stabilization at 85% occupancy (projected Year 3), the facility should generate $750,000+ in revenue and $500,000+ NOI, supporting refinancing at favorable terms.
Ready to Grow Your Self-Storage Portfolio?
Whether acquiring an existing facility, developing new construction, or refinancing for better terms, financing options exist for self-storage operators at various experience levels.
Apply to explore options matched to your project. We work with lenders who specialize in self-storage and understand the asset class's unique characteristics.
Ready to explore your options?
See what financing you qualify for in minutes — no impact to your credit score.
Related Articles
SBA Loans Explained: A No-BS Guide for First-Time Business Owners
Cut through the jargon and understand exactly what SBA loans are, the three main programs, typical rates and terms, who qualifies, and what the process actually looks like.
Read more →Business Term Loans: The Complete Guide to Getting a Lump Sum for Your Business
Learn everything about business term loans: how they work, qualification requirements, typical rates by lender type, and how to choose the right option for your needs.
Read more →Business Lines of Credit Explained: The Flexible Funding Option Every Founder Should Understand
Learn how business lines of credit work, including revolving vs non-revolving options, secured vs unsecured structures, typical credit limits, interest rates, fees, and when a LOC is the right choice for your business.
Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
Third-Party Lenders: All loan products are offered by independent third-party lenders. Liminal Lending Co. is an Independent Sales Organization (ISO) and receives compensation from lenders for successful referrals. Terms and conditions of any loan are between you and the lender.
Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.