Getting Gas Station Loans: A Road-map For Success

Gas stations are one of the most prolific businesses in the US. In addition to the large chains, many gas stations are small businesses and owners can qualify for an SBA Loan when they want to finance either a new purchase of a gas station or if they want to expand upon their current gas station and need working capital. Getting gas station loans may be more accessible than you may think.

The profit margin with gas stations is slim if only profit on gasoline is looked at. With fluctuating crude oil prices, service stations can’t always count on stable gas prices. This is why many gas station owners are adding additional revenue streams. In fact, The New York Post reported that Americans spend just over $9 a week on snacks. Small restaurants or convenience stores connected to a gas station can add to cash flow, but does require working capital to get inventory. Even with the addition of additional revenue sources and with an increase in the number of businesses, total revenue is down for the industry, as is annual growth. Thankfully, with the annual industry revenue at just under $414 billion, it is an industry that can be profitable.

Small business loans, specifically gas station loans, are a viable option for small business owners. The loan programs are simple processes if owners are organized and plan properly. As with any industry, there are things owners can do to become successful and there are pitfalls to try to avoid.

Here’s how a Pennsylvania gas station owner was able to secure working capital from Biz2Credit and fund his dream renovations. 

The Do’s and Don’ts of Gas Station Loans

YES: Small business owners, especially owners of gas station properties, need to invest in themselves and in their real estate. Any small business owner, especially an owner of a gas station with a convenience store connected to it, needs to always be learning The National Association of Convenience Stores offers convenience store owners educational opportunities that will help owners respond to industry challenges.

NO: Focus on getting a quote from just one lender. Gas station loans and small business loan programs are varied and the options available have a variety of options and many financing options are organized into one area like Biz2Credit.com’s gas station loan informational page. Gas stations have unique needs, which is why lending options may include a commercial loan, a line of credit, or a loan from the SBA Loan Program. Interest rates and payment options can vary as well. With a business line of credit option, small business gas station owners can use the equity they have in equipment and real estate to access needed cash for inventory or staff. It is a viable option that is always there to draw from.

YES: Whether you are a start-up gas station or a seasoned small business owner, have a business plan and stick to it. The Small Business Administration has resources that can get you moving in the right direction. Any financial lender or institution expects a plan to review to better determine if there is a risk to lending money. The more detailed the plan, the better the chances of securing funding. If you are already in business and looking to expand, have all financial information available.

NO: Do not fail to be organized with not only your business finances, but your personal finances as well. If you are a first-time owner or looking for financing for the first time, your personal finances, like your credit score are just as important. You will need all your personal tax records available and be as transparent as possible. No lender likes surprises.

YES: You need to talk to lenders and have a grasp of the different options available to you. Lending can be more than the traditional commercial loan with a payment plan. If you don’t have the initial collateral to help secure a loan, you may look into securing an unsecured loan or line of credit. this option. There may be more stringent financial requirements and your personal credit score may be used since the lender will take on 100% of the liability of the loan.

Traditional options for gas station loans and for small business owners are the Small Business Administration‘s (SBA) 504 and 7(a) loan programs. The SBA usually backs 75% of the loan, which eases the amount of risk that the banks or other lending parties assume in financing a hair salon or spa service industry business. In order to receive this type of funding the borrower must meet the SBA loan eligibility requirements and adhere to the SBA Standard Operating Procedures for loan underwriting. The SBA 7(a) loan is similar but it is designed for other uses like refinancing existing debt, purchasing supplies or equipment, or expanding your business. Although the 504 and 7(a) are quite similar, there are differences in minimum and maximum amounts you can borrow, the terms of the loan, the interest rates and the amount of down payment required of the borrower.

No: Overlooking alternative lending options. There are two types of financing that can be an option for new owners or gas station owners just looking for cash flow solutions. If you are looking to buy an existing gas station, it might be possible to arrange the terms of the pricing and financing with the current owner in what is called seller-carry financing. Instead of getting the full price, both parties negotiate the pricing, the period upon which the transaction will be completed (typically 3 to 5 years), and the rate of interest on each payment made. The added advantage to this is that the previous gas station owner can help to oversee training of new staff during the transition period to ensure the future success of the business.

A merchant cash advance is not technically a loan, but it is an advance based on credit card receivables. Lenders offer merchant cash advances based on the volume of credit card sales a gas station has over a given period. In order to qualify for a merchant cash advance, the gas station must have a physical establishment, as well as an established record of credit card sales. The higher the volume of sales, the greater the amount of the cash advance. Merchant cash advances are typically considered to be short-term funding. They can be arranged quickly, but have higher pricing and interest terms than other small business loans. They can also provide business borrowers with an upfront fixed amount of cash. The funding amount is based upon a percentage of the businesses credit card receivables using historical credit card receipts and bank statements to determine the initial amount. The business pays back the advance, plus a percentage, often referred to as a discount factor, from a portion of their credit card receivables. The payments are drawn from the business customer on a daily, weekly or monthly basis until the obligation has been met.

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