SBA 504 Loans
Learn about SBA 504 Loans for Self-Storage Properties
SBA 504 Loans for Self-Storage Properties
An underdog when it comes to self-storage financing, the Small Business Administration’s 504 loan program can be a savvy financing choice for self-storage investors. These loans are typically good alternatives for investors unable to qualify for conventional financing.
The SBA 504 loan offers long-term, fixed-rate financing for the purchase, construction or renovation of a self-storage facility. Investors can receive a maximum loan amount of up to $5 million, with 10-, 20-, or 25-year repayment terms.
2022 Borrower Qualifications for SBA 504 Loans
To qualify for an SBA 504 loan, an investor must:
Be an entity operating as a for-profit company within the U.S.
Maintain a net worth of no more than $15 million
Have an average net income of no more than $5 million for the two-year duration leading up to the loan application
Be able to demonstrate management and operational expertise
Present a business plan deemed feasible by the SBA
Demonstrate ability to repay the principal balance
SBA 504 loans are commonly made available through community development corporations — often referred to as CDCs. Both a CDC and a bank (or credit union) contribute funding for an SBA 504 loan.
These loans consist of three parts. The largest part is a conventional first mortgage that accounts for 50% of the project’s cost, provided by a third-party lender. The SBA-backed portion of the 504 loan functions as a second mortgage, accounting for up to 40% of the total amount. Finally, the investor is expected to put a down payment of 10% down payment toward the project.