Self-storage units: An untapped lending niche for credit unions

Wherever you go across the country, in communities large and small, you will likely see at least one self-storage unit. For consumers looking for extra storage space for residential and business purposes, they are a necessity. Self-storage units also represent an untapped lending niche for credit unions looking to expand their business lending portfolios.

Consider the following self-storage industry statistics:

• The self-storage industry represents $37 billion in annual revenue
• $16.1 billion in profit
• Self-storage businesses grew at a rate of 7.7% from 2012-2017
• 3.6% future growth is projected in the near-term (2017-2022)
• There are total of 36,000+ self-storage businesses in the country (roughly 85% of operators are mom-and-pop local operations as opposed to larger corporate or franchised outfits)

Looking at self-storage units as an opportunity for business lending growth for credit unions makes good sense. Along with the aforementioned positive financial indicators, self-storage also offers the following benefits to credit union business lending programs:

• Relative stability (self-storage is a needs-based product and is, therefore, less susceptible to economic downturns). In fact, the self-storage industry weathered the financial crisis well as both residential and business consumers turn to self-storage units when forced to downsize home and retail locations
• Low fixed costs and low variable costs
• Self-storage units are cash-makers generally breaking even at roughly 50% occupancy (and average occupancy of any self-storage facility is upwards of 85%). This offers excess cash to the business owner to help support the loan, thus further solidifying the viability of the loan
• Low default rates

In addition, some credit unions are unaware that self-storage units qualify for SBA financing. Self-storage units are considered “active” as opposed to “passive” businesses, thus qualifying for SBA lending. When credit unions offer SBA lending on self-storage business notes, they can typically entice borrowers with higher loan-to-debt ratio qualifications and up to 25-year terms as opposed to balloon notes. Self-storage units also qualify for the SBA 504 program (allowing the credit union to split the loan between itself and the SBA).

Self-storage units offer an enticing route for credit unions to further develop their member business lending portfolios. They are a relatively low-risk investment with a high return potential. SBA lending further enhances the attractiveness of this product to both credit unions and the business lending members they serve.

For more information about Member Business Lending (MBL), call (801) 545-7934.