Self Storage University Podcast: Episode 101

How To Be Attractive To Banks

When it comes to getting a loan on a self-storage facility, the better you are at attracting banks the better your loan options will be. So how can you build your lender popularity? In his Self-Storage University podcast we’re going to review some the basic steps and skills that will make you a more desirable bank customer.

Episode 101: How To Be Attractive To Banks Transcript

Webster's dictionary defines attractive as having beneficial qualities or features that induce someone to accept what is being offered. This is Frank Rolfe with the Self Storage University Podcast. We're gonna talk about making your deal attractive to banks, making you an attractive customer for a bank to choose to go ahead and give you a loan on a self storage facility. Now we all know that attraction is a very important component of life and we also know that to be attractive requires some degree of work. So how can we work towards trying to be a borrower that banks would like to put on their roster of customers? Well the first thing is obviously to have the basics the banks desire, to have a good credit score and no prior foreclosures and no prior bankruptcies, so that would certainly be helpful. Now if you don't have a good credit score or you've had recent foreclosures or bankruptcies, then it may be the best bet you have for financing a self storage deal is seller financing.

That's frequently on the table particularly on more rural properties. But a good starting spot if you want to get bank debt is to be what they want to see in a borrower, which is a good credit score and good fundamentals of past experience. And the next thing you need to have to be attractive is a good narrative on why you are an experienced asset manager who can steer that deal towards success. So that could be a range of items, other real estate properties you've owned if you have not owned a self-storage property before, or maybe a small business that you started and that you run, anything that shows that you've got management expertise and ability.

And then you'll need a really great loan package. A loan package that shows plenty of photos and plans and great well laid out numbers. Because remember that the bank is not going to spend nearly as much time as you have looking at the asset, so you kind of have to walk them through a really good elevator speech showing them here's what it looks like, here's where it's located and here's why I think this is a really good thing for the bank to be involved in. You've gotta remember that banks are pessimists by nature, so you've got to particularly focus on the risks and the downside and the plan B's for all contingency. Because when you're a bank, here's how it looks to you. You make a loan and if the deal goes incredibly well, the best you get is your money back and the interest rate. You get no upside in the deal at all. If you take that self storage property and you make it worth twice what you paid for it in five years time, how much of that upside does the bank get? Zero. Absolutely none.

So as a result, banks don't think as far as the glass ever being half full, the glass is perpetually half empty because from their position, that truly is where things begin. And if you're a bank and you're very negative, then what you wanna see is that the borrower has all kinds of contingency plans in case things don't go as planned. So look at the variables, the things you can't control, the occupancy for example. Don't show them an occupancy that's higher than what it's at now, show them what would happen if the occupancy even went lower than where it's at now, show them what your breaking point would be, explain how you would cover any negatives. Those are the kinds of things that banks like to hear. Also remember that the bank's key focus is preservation of capital. A bank can make some bad loans that don't make any money back but when they lose capital on a deal, it takes away from all the other profits they make. One bad deal can literally ruin the entire bank's performance. So they really, really wanna make sure that you're not buying something that will not be worth what you paid for, that it will be worth less than what you paid for it in the near future.

So once again, reassure them of that. Tell them how great the market is. Tell them how great the property is, how you're stealing the property, how the price is wonderful on it. Those are the things banks like to hear because they don't ever want to go to their board and say, oh, I'm sorry, well, we lost money on that loan. Also be honest. Bankers love it when you're honest, they hate bs. Banks can smell it from 10 miles away. They work with customers all the time. They have people out there who are trying to promote crazy schemes left and right. So they know, they can smell when you're lying. So just give it up. Tell them the truth on your background, tell them the truth on the market, tell them the truth on the property. Don't try and puff things up, don't try and appear to be a bigger person than you are with much greater real estate experience, they're gonna find all that out in due diligence anyway. Instead, just be yourself. Be enthusiastic about what you're doing. Be clear in your presentation of why you're doing it, that's the kind of honesty that banks really appreciate.

And then finally, you wanna talk to a lot of banks because if you really want to be attractive, you have to send out the vibe that you have many other options. No bank wants to hear that you're only talking to them or that they're the only bank that would bank you. It's just consumer logic that things are more attractive to people when they seem more hotly in demand. You definitely have much better chance of getting a date for the prom when you send out the vibe that you have many other people that may invite you out to the prom, and you can do the same with banks. And you do that through volume, through talking to a lot of different lenders.

When a bank can feel the vibe that you are talking to a number of lenders, it makes them feel more desirous to get the loan done because they somewhat feel they're in competition with the other banks. The bottom line is that being attractive is an important component of lending in general and self storage in particular. Particularly at times like these when the entire American real estate market is extremely strained by high interest rates, banks tend to navigate more towards loans of quality and borrowers of quality. And it's very very important at this moment that you put the best foot forward whenever dealing with a bank. This is Frank Rolfe for the Self Storage University Podcast. Hope you enjoyed this, talk to you again soon.