Across the country, self-storage companies are a hot commodity for both developers and small business owners. Buying self-storage facilities is still a popular move which means that you can sell your building for a good price. However, the current market can also make it difficult to buy another self-storage property if you are looking to expand your reach in the market.

Thankfully,  your self-storage property most likely is full of equity which means it is beneficial to start thinking about refinancing your loans and pulling out cash. This method can provide you with extra capital and means you will have less worry about buying another facility at above fair market value.

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There are multiple benefits to refinancing and taking advantage of the equity your self-storage facility has obtained.

Here are some tips to finding out if you are eligible to refinance and the types of refinancing options that best suit your needs. 

Are you Eligible 

Despite a strong market for self-storage facilities, not every owner is eligible to refinance their loans. A self-storage owner who is eligible to refinance and take advantage of their equity is an owner that has good cash flow, credit, collateral and a lot of credibility.

An owner with good cash flow means that when refinancing your property, you must be able to service the debt. Whatever amount you pull out you must have 1.25 times more in net cash flow to the annual debt. This lets your lender know that you have enough cushion based on the loan amount.

Ideally, the perfect borrower would also have good credit meaning they have zero bankruptcies, foreclosures or short sales. A few black marks on your credit won’t necessarily kill a deal, but it will sure make it more challenging.

If you hope to refinance you are also going to need enough collateral meaning your loan to value ratio cannot exceed 75 percent.

Lastly, lenders are going to want to refinance with an owner who has credibility. This means they are looking for a person who has been in the industry for a while or has had established business success. You don’t have to be an established self-storage owner if you have dealt with the development and management of other types of real estate. Having experience in the self-storage industry, or a similar industry, makes you more suitable for obtaining a loan.

The self-storage market is still booming so if you meet all of these requirements you should be in a good position to refinance.

Different loan options

There are a few options available for self-storage owners who are looking to refinance and each loan is beneficial to different owners depending on the standing of their business and the amount of capital they are willing to advance.

Small Business Administration loans 

A small business loan is a great way to refinance for owners who are looking for a little more leverage during negotiations. SBA loans are for self-storage owners looking to borrow up to 85 percent of the value of the property.  

Life insurance company loans

These are long term fixed loans with a 25-year amortization and 10 year fixed rates. The reason someone may use this type of loan is if they have complicated financial statements due to owning multiple companies that require tax returns. This type of loan can help self-storage owners avoid copious amounts of bank underwriting.

Mid-Market Banks

The other option is to utilize a strategy that will leverage the banking community.  There are very unique groups, who do not advertise, that have great permanent loans programs.   Typically, you can expect up to 70%, especially on cash out.  Furthermore, the terms can fix for 5, 7 or 10 years.  Rates can range, but at the present they are in the 4’s.  Someone should expect the property to be underwritten, as well as them personally.  What this means is the lender will look to see the property cash flows at 1.25 to 1.3 DSCR first.  After this the lender will focus to see if you personally cash flow.  They want to make sure that someone has the ability to cover payments if the property doesn’t perform. 

Credit Unions

Over the years, credit unions have become quite a force in commercial lending.  This could be a very viable option for the following reasons.  First, credit unions typically don’t have prepayment penalties.  This can be very attractive for investors who want a lot of flexibility.  Secondly, credit unions can at times be more flexible on leverage.  Most groups will only do 65 to 70 percent loan to value.  There are some credit unions that will move as high as 75 percent loan to value.  This can be very attractive for someone who is looking to pull as much cash out as possible. 

Action Step

Where do you go from here?  Here are a few tips:

1. Answer the question, “what is my purpose for pulling this money out?”

2. Prepare for success, by gathering your profit and loss for the last few years, a rent roll and a management summary report. 

3. Contact a loan broker and many will offer a free assessment for your eligibility.

The self-storage market is booming across the country and with a booming market comes multiple ways to refinance your property. This is the perfect time to make the most out of your self-storage property.


Dave Kotter is the Principal of Integrity Capital LLC. A commercial mortgage brokerage in Scottsdale Arizona. He has helped self-storage owners find financing across the country.