With the onslaught of ever-increasing rates over the past 18 months, many owner-operators have been searching for a viable solution to purchase or refinance their facility. Most products have virtually doubled in rate compared to those available through the middle of 2022.
A new SBA product has arrived at 7.9% for a 5-year term on a 25-year amortization. The rate is nearly 3% lower than the average and the amortization is 10 years longer than most bank notes alleviating cash flow shortfalls that undermine most owner’s cash flow.
Currently, the market rate for most SBA products is PRIME+2% or more, putting rates north of 10% on average compared to 3-4% in 2022. Since SBA is one of the few high-leverage (90-100%) products available, even with the higher rates it is very much still in demand throughout the country. SBA offers high loan-to-value, credit score exceptions and more flexible underwriting than most banknotes.
Self-storage facilities must be owner-managed, preferably non-kiosk and well-maintained. They can be located anywhere within the contiguous United States within relative proximity to major metro areas. LTV’s can go as high at 90-100% which is great for those with management experience but not necessarily gold-lined pockets.
Let’s say Sam’s Self Storage is for sale in Nashville, TN.
Sam is ready to retire and there is a buyer, Joe Jones who has been managing Sam’s Self Storage facility for over 10 years. He’s helped Sam to get the business profit in the black and the place now has a mile-long wait list for new customers. There’s the most important piece of the puzzle…EXPERIENCE!
The second most important thing of course is the dollars and cents of a real estate purchase and that’s where SBA is a great tool for those with limited cash or limited existing equity.
- Our purchaser/manager Sam has $124,000.00 in savings.
- The purchase price is $1,000,000.00.
- Sam will need to put down up to $100,000.00 however with SBA, he can receive an additional line of credit providing him a financial cushion for his new venture.
- SBA wants small business owners to succeed and will get creative in that effort.
- Effectively Sam’s global cash flow (overall financial picture) will improve with the purchase, and he not only will be an owner of the property but will have cash left in his pocket.
The last part of the financial picture is the bottom line.
- There are many Profit and Loss statements that give a less-than-perfect accounting of a given facility.
- Do not let a set of tax returns in the red keep you from purchasing a facility.
- There are financial add-backs of all kinds often well hidden within tax returns.
- Those addbacks can flip a financial picture and turn an underwriter’s ‘NO’ into a firm ‘YES’.
Let’s look at Sam’s Self Storage…he must be doing something right since Sam has the place at 100% occupancy with a wait list but when you look at his profit and loss statement, the past year shows a loss of $178,000.00!
Most buyers would just walk away but Joe knows what happened in 2023 and can shed light on the accounting.
- In 2023, Sam had to put in a new parking lot, add 2 new security systems, pay off a second mortgage and install new locks on 60% of his exterior storage units.
- All total, these on time expenses were $293,000.00.
- All those expenses are one-time occurrences and can be added back to the bottom line.
- Sam was actually cash flow positive and didn’t even realize it.
- This information is gold to an underwriter, allowing him to put an approval on Joe’s purchase so Sam can enjoy his retirement.
If you’re searching for financing, whether for refinance or purchase of a self-storage facility, SBA can provide a path to financial success and close your loan.
Contact:
Anita Huedepohl, AIFD, CFD
Liberty Funding
www.libertynationwide.com
615.417.4710
