In this episode of the Self-Storage Podcast, we catch up with a household name in the self-storage industry: Terry Campbell from Live Oak Bank. While most sectors of the economy were badly hit during the pandemic, Terry believes the self-storage industry has been resilient and is currently faring very well. Indeed, given the recession that we’ve recently experienced, calling self-storage a recession-resistant industry would not be a stretch.
As a speaker at the Self-Storage Academy for six years, Terry talks about the current state of SBA lending in the self-storage industry and what post-pandemic life could be like.
What Is an SBA Loan?
The US Small Business Administration (SBA) works to provide loans to small businesses. While the SBA does not lend the money directly, a small business owner can get a loan from SBA’s lending partners. The agency makes this easier by reducing the credit risk for the lender and accessing the capital.
One of the most common loan programs is the 7(a) loan program, which helps small businesses with special requirements. It can be used by a business for working capital, purchasing new facilities and equipment, and financing the existing debt payment.
Can I Use an SBA 7(a) Loan for Real Estate?
The 7(a) loan could be a good option if business owners need a real estate loan. If you are going to construct a new building, renovate an owner-occupied property, or buy land, SBA 7(a) loans could help you.
According to the SBA, you can receive a maximum of $5 million as a part of a 7(a) loan. To be eligible, your business must operate for profit and work in the United States. It is required that you have used alternative financial resources, such as personal assets, before you seek financial assistance.
Is a PPP Loan Different From a 7(a) Loan?
The SBA’s Paycheck Protection Program (PPP) was created specifically for dealing with the pandemic. Its objective is to ensure that small business owners have sufficient capital to keep their employees on the payroll and pay rent and mortgage interest, etc.
A PPP loan is made by lenders and guaranteed by the SBA. If you have not received a PPP loan before, you qualify for First Draw PPP loans. A business that has used a PPP loan earlier can apply for Second Draw PPP loans.
What Is the SBA 504 Loan Program?
According to the SBA, the 504 loan program grants long-term financing at a fixed rate for fixed assets promoting business growth and job creation. You can avail of a loan by contacting the nearest Certified Development Company (CDC). An SBA 504 loan can be used to purchase or improve a building, land, machinery, or existing facilities. SBA 504 loans are not for you if you want to invest in rental real estate, however.
What Is the Current State of SBA Lending in the Self-Storage Industry?
If you are a landlord and pay a manager or an employee for looking after the needs of your tenants or the maintenance of your property, you can apply for the PPP loan program.
As Terry remarks, the self-storage industry has done well during the pandemic. If you are a self-storage facility owner and need commercial real estate loans, it is worthwhile to check your loan options.
For SBA loans, debt being guaranteed by SBA allows the bank to provide credit for a borrower who may otherwise have trouble securing a loan. Borrower-friendly and flexible, SBA loans have longer terms and low interest. A small business owner can purchase, refinance, expand, or build a self-storage property with an SBA loan amount.
Finding funding for real estate projects is just one step of the journey. To learn more about the most common mistakes investors make in self-storage and how you can be empowered to avoid them, check out our FREE Education Guide!