Gas Station Loans

Main Challenges Getting a Gas Station Loan:

• Because many gas and convenience store customers pay for their purchases in cash, it may be difficult to fully document and prove your total income. You will probably have to rely extensively on your tax returns in order to qualify.
• Traditional banks typically will decline a loan if your business records demonstrate decreasing sales, low cash flow, or if you lack collateral or a significant amount of managerial experience.
• Your credit score is an important aspect of qualifying for a traditional loan, so if you have faced financial business challenges, it may impact your approval.
• Traditional bank loans will typically be for a term of 20 years and carry a balloon payment clause at the 5 year mark or the half-way point (year 10) of the loan. Having a balloon payment may mean you will have to refinance the loan before its paid off and deal with another round of associated closing costs.

If your business is new or a start-up, approval can be almost impossible to get. According to Foxbusiness.com, many banks turn away requests for a start-up loan because they require three years of business financial data to be provided.

A gas station loan can be used to finance or expand an existing business, purchase a new gas station-related business or purchase real estate for a gas station. In other cases, gas station owners may just need working capital for purchasing new equipment or buying inventory.

Despite the fact that they are high volume enterprises, gas stations and gas station/convenience store combinations often need infusions of capital. Business owners can seek working capital in the form of gas station loans, lines of credit, gas station financing, and other forms of commercial lending that can ease any cash crunch.

The majority of gas station owners, including both franchisees and independent gas station owners, secure working capital during crunch times to keep their operations running smoothly year-round.

Securing loans for gas stations can be much more difficult to complete than other types of small business loans. There are challenges specific to the nature of this business that you will have to overcome.

Your choice of lenders will be more limited than with other types of businesses. Those potential lenders who serve this type of borrower will be concerned with environmental issues that may impact the business. The very nature of this business has perceived environmental risks that are not present in many other types of commercial endeavors. Also, this type of property is usually limited to a single use, a gas station, and this impacts its perceived value when it comes to recouping funds if the business fails.

Gas station start-up funding and franchising financing can be significant investments. Any aspiring business owner who has purchased a location or has entered into a lease agreement knows that setting up a business is costly. Luckily there are many different kinds of start-up financing and service financing options available to station owners, if you know where to look.

Financing the Purchase of an Existing Gas Station

You may find that buying an existing gas station business is more to your liking. Purchasing an existing business has a unique set of challenges and you may have to pay a "good will" premium. However, you probably aren't sure exactly where to find the financing you'll need or even how to start. Let's start with an overview of how to find the right bank/financial institution, SBA and conventional loans, and other financing options for gas station purchases.

Getting any type of business loan is a process. Knowing what to expect before you enter into the process will increase your chances of getting your funding on-time. This means working with professionals who can guide you through the entire process, avoid delays and inform you about what you qualify for. Having this type of knowledge and assurances can potentially save you thousands or more when negotiating your purchase.

Getting prequalified and vetted by a financing specialist for gas station financing in advance is vital to your success!

Basic Documentation for a Gas Station Loan:

• Last 3 years of complete personal tax returns.
• A one page resume of your recent work experience (usually the last 10 years).
• A compete Personal Financial Statement (PFS) detailing your personal income, assets, and liabilities.
• New Articles of incorporation (if you want to finalize your deal with this type of business structure).
• An explanation of any past bankruptcies (and discharge information) - either personal or business related.
• A copy of your bank statements (to verify the funds for the down payment/cash injection into the deal).

Purchase Agreement

When purchasing an existing gas/service station you will need all appropriate inspection and registration documents of the UST (Underground Storage Tank) from the seller if the business you are contracting contains underground tanks. You'll also need to provide some or all of the following:

Sources of Financing for Gas Station Purchases

As discussed above, banks and financial institutions can be very conservative when considering funding gas station deals - environmental concerns, the swings in gas prices over the last few years, etc. may impact the loan decision process. Many larger financial institutions simply don't have the expertise and specific knowledge of gas station operations, so they shy away from lending to that kind of business. Most gas station loans are made by local and regional banks/financial institutions that are more likely to offer the best financing for local gas stations purchases, rather than the bigger institutional types.

Geography typically does not make a difference unless a lender is prohibited or unlicensed to do business in a certain state. This is becoming a thing of the past however, as non-bank lenders do not have the same regulations as many banks.

With more choices than ever, finding the right fit for your particular needs is especially important. Different types of lenders will offer different kinds of loans or financial products, so it's important to be aware of the most common types so you can be prepared when you work with these companies.

Conventional Loans

The conventional loan process can be less cumbersome and faster than seeking government backing, but they are typically harder to get, even with excellent credit. For gas station owners, because of the industry concerns that were mentioned earlier, it becomes even more difficult. You may need up to 30%+ down; the business to be purchased needs to be VERY healthy financially and you'll have to put up sizable collateral, most likely your house and/or real estate investments. Even if you meet these requirements you still may not get the loan.