How to Get a Business Loan for a Gas Station
March 14, 2019 | Last Updated on: July 18, 2022
March 14, 2019 | Last Updated on: July 18, 2022
Though it can be challenging work for anyone, getting a business loan for a gas station can be highly rewarding. Gas stations can be very profitable, but present unique challenges. You’ll have to do a considerable amount of work before you ever open up. But when you’re ready, financing a gas station can be a highly lucrative and rewarding move for many business owners.
One automatically marketable aspect of gas stations is that they provide a product almost everyone in America uses in some way every single day. Whether it’s commuting to the office, eating a cheeseburger, or borrowing a book from the library, you’d be hard pressed to find a single everyday activity that doesn’t come back to gas in some way. Owning a gas station means participating in a necessary industry.
But owning a gas station – and getting a business loan for one – isn’t as simple as just getting a check and opening the doors.
The first thing you need to consider once you’ve decided to get a business loan for a gas station is whether you want to purchase an existing location, buy into a franchise, or create an independent company.
There are positives and negatives to all of your available options. Acquiring an existing company will likely be cheaper up front, since the infrastructure and equipment are likely already on the scene and ready to go. Customers may already have a longstanding habit of buying gas at the station, which can provide an existing revenue stream.
Buying a franchise means that you’re going to pay less money and give up a host of options in exchange for simplicity. You may not be able to make as many choices as you would otherwise, but remember how much the franchising will save you. Your advertising is handled. Troubleshooting can be done through the franchise. Customers will have a level of trust in your business right away.
An independent gas station doesn’t come with the benefits of an existing support system or brand recognition. It does come with freedom. You have the option to create as many additional revenue streams in your gas station as you’d like. You could provide food, drinks, car washes, a service station, and more to ensure your customers fulfill every possible need.
Keep in mind, though: Lenders will likely be more willing to fund you if you’re purchasing an existing franchise location instead of opening a new independent location. That built-in trust, existing relationship, and proven support system can make you seem like a much safer bet for a cautious lender.
But it isn’t just the business structure that determines your eligibility to get a loan or ability to manage your gas station. Many factors will play a part in your success.
Even after you get a business loan for a gas station, remember that gas station profits from gas are very low, below even 2%. As the price of gas goes up for customers, it’s going up for you. And vice versa. Both conditions – unusually high price and unusually low price – can be bad for business. If gas is too expensive, fewer people will buy. If gas is too inexpensive, you’re not generating enough revenue to turn a profit.
Location is key to the success of any gas station. Obviously, you’ll want to be located in a highly visible location to drivers, since you can charge a premium for convenience.
Imagine you’re halfway through a seven-hour drive and need to fill up your tank. If the station right off the highway is charging $2.85 per gallon and the station a mile down the road is charging $2.79, is it worth the extra time to drive to the cheaper location?
Most drivers will almost certainly opt for the faster option. The location advantage is worth extra cents of profit on every gallon you sell.
Gas stations offer various secondary revenue streams. You don’t have to just sell gas. You can also sell food and beverages, tobacco products, household items, and memorabilia. Many gas stations have service sections or car washes as well. Know what the drivers need in your area and use that knowledge to create multiple reasons for them to come to your gas station.
Think about what comes with owning a gas station. Tanks, movement, refrigeration, etc.
You need to ensure that every piece of equipment is perfectly functioning. The tanks and pumps need to be inspected – in some states, annually. Your refrigerators need to be consistently running at the same temperature, and a service truck needs to run perfectly.
If you have additional streams of income, those may also involve additional equipment upkeep. That could be a car wash, service station, or food-related equipment.
It’s vital that you keep your equipment in top shape and ready to perform. In a business with such thin margins, every moment your equipment can’t perform is lost money.
Because pricing fluctuates and margins can be thin, it’s particularly important that gas station owners have working capital available to ensure sufficient inventory of both gas and convenience items. That means you’re not likely to be able to finance a gas station with a microloan.
Federal government-backed Small Business Administration (SBA) loans are likely the best option for a more established owner looking to purchase or build a gas station. They’re the least expensive loans and tend to be the biggest, giving you the most working capital. Because SBA loans are backed by Uncle Sam, lenders are willing to give more favorable rates, knowing they’re not likely to lose money.
If you’re purchasing an existing gas station, an equipment loan could be an option. If the underground tanks holding the gasoline are old or outdated, you may need to replace them.
Once you’ve done the research on what it takes to run a gas station and you know the different types of business loans, move forward as best you see fit. Gas stations can be highly lucrative investments for those who know what they’re getting into and are ready to do the work.
The COVID-19 pandemic is causing disruption for business owners in gas stations industry.