Financing of containers in the Portable Self-Storage Industry or “Residential Storage Industry” is much more challenging than that of the traditional portable storage industry. The traditional portable storage container industry uses ISO containers, a standardized product that is part of a well-established second-hand market. The portable self-storage industry uses specialized containers often tied up in franchising agreements with no established and sometimes restricted second-hand market. Therefore, if you are looking to launch a portable self-storage program, think strategically of what type of containers you choose.
Being a portable storage operator, you have most likely experienced the skepticism with which a banker looks at our industry. What makes the banker feel uncomfortable with lending to a portable storage operator is the challenge of what he has to do if the borrower defaults. In other words, how does the banker recover and dispose of the container that is used as collateral?
Here are some of the main reasons for a banker's skepticism towards ISO Containers:
The containers are not titled equipment and markings can easily be changed;
The containers are scattered over a large geographic area;
Individually, the containers represent a relatively small amount of money; and
The users (the customers of a portable storage company) have one or just a few containers per location.
These challenges can be overcome by explaining to the banker that the portable storage operator has his own marking system and that the containers that are out on hire have a rental agreement. Hence, even if the container cannot be recovered, the renter is obligated to pay for the value of the container. Furthermore, if the banker ends up holding a fleet of portable storage containers, it can easily be disposed of. In addition, there are other operators who are willing to buy the containers on rent and assume the rental agreements. Secondly, there is a fairly sophisticated market for ISO Storage Containers in most parts of North America. Finally, the physical lifetime for ISO Containers is very long.
The banker's view of a fleet of Portable Self-Storage Containers would differ in the following areas:
A larger portion of the containers are at the operator's warehouse;
The containers are not standardized;
The secondhand market is not well developed;
If the containers are part of a franchise such as PODS, 1-800-PackRat, Units, etc., they may only be sold to other franchisees within the same program;
The non-standardized container limits a banker's possibilities to sell a fleet that has been repossessed; and
The physical lifetime of portable self-storage containers is shorter than that of an ISO Container.
If you are thinking of starting a portable self-storage business or expanding your current operation into one, you need to be strategic about what equipment you choose. From a practical point of view, you want to be able to use the same type of delivery trucks and trailers and from a financial point of view, you should use the products that can most easily be financed.
While you may not be looking for financing initially, you may want to do so at a later stage and you should choose your container equipment with that in mind. Our industry is very capital intensive and if your business takes off, you are going to need more capital to grow. That capital can come from investors, lenders or leasing companies.
Regardless of which, these sources will be exposed to the risks involved with the various container types you choose to work with.
The three categories of equipment that I think financing sources look at are:
Containers that are residual equipment from the maritime cargo container industry or “one trippers.” They are highly standardized products with a long physical lifetime and have a well established second-hand market.
Portable Self-Storage Containers
Containers that have a lighter construction and are sold directly by a manufacturer or distributor. These containers have a shorter physical lifetime than the ISO container and a have limited second-hand market.
These are the same as above, but in addition, they have a limited resale possibility due to being part of a Franchising Agreement.
My recommendation, for financing purposes, is that you avoid entering into a franchising agreement so that you can build your fleet with either ISO Containers or Portable Self- Storage Containers based on which type you think works best in your market and within your organization.
Anders Norlin is the Managing Member and owner of Box Credit LLC, a company that provides financial solutions and advisory services to the portable storage industry.