What a Lender Needs From You for Self-Storage Financing

Acquiring facilities, land or additional units is critical to the growth of your self-storage business. Fortunately for potential owners, the SBA 7(a) loan program is an excellent funding source for deals up to $5 million. Let’s look at documentation lenders expect when evaluating a loan request for a small business acquisition.

  1. Description of spending.Your lender will look for a detailed description of how you plan to spend or use the funds loaned to you. For example, if you are building a new facility or expanding, plan to outline projected costs for your architect and contractors, as well as other planned expenditures. If you are purchasing a facility, include real estate and purchase figures of the building, staffing, technology investments, and any other transition costs. If necessary, include marketing funds and any working capital expenses needed as you get your business up and running.
  2. Current profit/loss statement and balance sheet dated within 90 days. How much cash did the facility generate last year, and how much is it generating today?What are your total expenses per month, and have you spent too much on supplies that did not contribute to revenue? Answering these questions will allow you to track expenses and their return.
  3. Business tax returns. If you own other businesses, your lender will want to see three years of tax returns as well as an interim profit and loss statement and balance sheet on those businesses.
  4. Personal tax returns. Plan to provide your personal tax returns for the past three years. Your lender will use this information to verify your annual income.
  5. Personal financial statement. This statement shows a lender your income, the value of your assets (such as your home, vehicles and savings accounts), outstanding debts, some of your debt payments, and monthly overhead. This will give your lender a good idea of your personal cash flow and the amount of additional debt you can comfortably handle.
  6. Personal resume. Lenders also want to be confident of your ability to operate a business. The objective of your resume is to show that you have the business, managerial or educational experience necessary to successfully manage your practice.
  7. Rent roll. For an existing facility, this is a detailed document of the total rent due by each tenant and the amount received to date. How many units are rented, and what is the cost of each of the units?
  8. Management reports. Pull your latest management reports to show payments, rent and fees, and any other key data that indicatesthe performance of an existing facility.

In addition to the above documentation, your lender will look at your credit (FICO) score to analyze your creditworthiness. FICO scores range from about 300 to 900, with the vast majority falling in the 600 to 700 ranges. For business loans, most lenders look for scores in the mid to high 600’s. The key factors influencing how your credit score is determined by past delinquencies. Credit management (do you always max out your credit cards?), the age of your credit file, frequency of credit applications and credit mix, are a few examples. Before applying for your loan, be sure to check your FICO score to ensure all information is accurate and take whatever steps are necessary to strengthen your financial profile.

Having the proper documentation prepared will help streamline the conversation with your lender, aiding in the success of the loan. Preparing in advance not only helps educate you on your potential purchase and business plan, but also shows the lender your dedication to the industry.