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.