The Challenges of Getting Gas Station Financing

Disclaimer: Information in the commercial real estate articles is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the commercial real estate articles often covers financial products that Biz2Credit does not currently offer.

Gas station financing challenges

Securing a loan for a gas station can be much more difficult than other types of small business loans. Here’s a few factors that can stand in the way of securing financing.

• Documentation – A large percentage of gas station purchases are cash sales. For that reason, gas station owners must use income tax returns and financial records to qualify for business financing.
• Investment – Gas stations are significant investments that typically require a lot of capital upfront, with estimates anywhere from $250,000 to $2 million to get the business running.
• Inconsistent cash flows – The gas station industry is not a seasonal business, but the cash flows can be inconsistent, especially for new business locations. This can make it challenging to get approved for traditional bank or conventional commercial loans.
• Startup setbacks – Some business financing options, like SBA loans and traditional bank loans, require a specific amount of time in business. Working with an alternative lender on startup financing for gas stations is the best way to overcome this setback.
• Environmental concerns – There are environmental issues that gas station owners may run into when applying for a business loan. Working with a lender with experience lending to gas station owners could prove to be beneficial.

Types of gas station loans

There are several types of loans and loan terms available for new business owners that work well with either a franchised location or an independent station. Some franchisors also offer private financing options or seller financing for their franchisees.

Term loan

A term loan is a traditional arrangement where the borrower receives a lump sum of money upfront and agrees to repay the loan according to the repayment terms. Interest rates for term loans can be fixed or variable, where they fluctuate based on the market rate. Term loans can be either secured or unsecured, where no collateral is required. Borrowers may still be required to attach a personal guarantee or provide a down payment for an unsecured gas station loan.

Gas station equipment financing

The equipment required to run a gas station depends on the type of location and services offered. However, if you’re purchasing or building an independent station, equipment financing can be a great resource for financing storage tanks, pumps, refrigeration, car wash equipment, and more. Since the asset acts as collateral on the loan, equipment financing can offer low-interest financing. The term of the loan is determined by the useful life of the asset.

SBA loan

SBA loans are a business financing option for small business owners where the funds are partially guaranteed by the U.S. Small Business Administration. There are several different SBA loan programs depending on the intended use of funds, the creditworthiness of the borrower, and the amount of loan desired. SBA loans generally require good credit and offer lower interest payments and longer repayment terms than other lending options.

Some popular loan programs available through the SBA are:

• SBA 7(A) Loans – Approved credit lines up to $5 million that can be used for large purchases, working capital, and refinancing high-interest debts.
• SBA Microloans – Allows up to $50,000 for business needs, based on approved business plan
• SBA Express loans – Approved borrowers receive up to $350,000 to be used as working capital.

Commercial Real Estate Financing

Commercial real estate loans may be the best choice if you are choosing to purchase an existing gas station. This type of financing can be used to purchase land, buildings, convenience store space, or to fund new construction. Real estate loans offer lower interest rates and flexible terms based on the loan amount, lender, and creditworthiness of the borrower.

Business line of credit

A business line of credit is not a loan, but rather a revolving credit that works like a business credit card. Approved borrowers are awarded a maximum credit line and can then draw on that credit line anytime they need capital for large purchases, renovations, or working capital. Any funds that have been withdrawn are repaid with monthly payments that include interest costs calculated using either a fixed or variable interest rate. When the balance is repaid, the funds become available again.

Crowdfunding

Crowdfunding can be a way to raise capital for buying a new gas station or buying into a franchise without a loan approval. It works when an individual, or business owner, collects contributions from different investors or donors. Contributors may expect nothing in return or invest funds with the understanding they’ll receive a reward.

Business Credit Cards

Business credit cards are a great financing tool for startup station owners or seasoned fuel store operators that want to have credit available in case of an unexpected expense, like a repair or large purchase. The financing costs of credit cards can be higher than loans because of the higher interest rates

Documents Needed When Purchasing A Gas Station

While there are several great options for gas station financing, it can be overwhelming to know where to start. The loan options, documentation needed, and eligibility requirements to get lending for a gas station business will vary based on the lender.

Here’s what you can expect to need for the loan application process:

• A well-documented business plan
• Established business and personal credit score
• Three years of business and/or personal income tax returns and financial statements
• A list of personal and business assets
• Debt schedules for business and personal loans, cash advances, and financing agreements
• Legal documents, including the Articles of Incorporation for the new business entity

Once you have decided whether you’re interested in purchasing an independent station or purchasing a franchised location, you can begin to consider other factors like location, prices, and financing options. Funding options can range from hard money lenders, commercial lenders, credit unions, and alternative lenders.

FAQs about Gas Station Financing

1. Can I get a SBA loan for a gas station?

   Yes, you can apply for an SBA loan to finance the purchase or operation of a gas station. The SBA 7(a) loan program is commonly used for this purpose, offering favorable terms for small businesses.

2. Which lenders offer financing for gas stations?

   Several lenders, including traditional banks, credit unions, and alternative online lenders offer gas station equipment loans and other lending products to service gas station owners.

3. How do I apply for financing to purchase a gas station?

   To apply for financing to purchase a gas station, first gather essential financial documents like business plans, tax returns, and financial projections. Then, approach lenders that specialize in gas station financing and submit a loan application for evaluation.

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