Financing Gas Stations And Convenience Stores In The 21st Century

It is amazing how rapidly traditions, lending practices and underwriting policies change in such a short period of time. Since 2005, it seems that everything has changed. Lenders were looking for every excuse they could find to 'make' the financing for a gas station work for the borrower. Today the lenders look for every excuse possible to deny the loan. Borrowers must become more educated [prior] to looking for a lender. The borrower must understand what property and business factors need to be in place before approaching the lender.

I will list some of these factors in a minute, but first the borrower needs to understand the volatility of the lending market for gas stations and convenience stores today. There are several factors that contribute to the availability of money for any specific sector of the business and commercial marketplace. One is obviously those times of recession, or down markets, either locally or nationally. In the last five years we have come to understand the problems associated with government intervention and environmental controls.

These two factors are putting enormous pressures on all lenders including government backed lenders such as SBA loans and USDA rural area loans. The rules and underwriting practices are changing so often that the underwriters fear that what is acceptable today might be unacceptable tomorrow and therefore change an A+ loan to a B or C rated loan overnight. I have been in situations where the SBA does not want to finance certain brands of gas stations because of problems in the franchise agreement.

Borrower Preparations:
As I alluded to earlier, the borrower must prepare [ahead of time] to present an acceptable loan package to the lender. I need to point out here that lack of preparation, or, a crisis such as being behind in mortgage re-payments or bad management will at best cause interest rates and loan fees to increase dramatically but most likely will cause the loan to be denied all together.

Some steps that the borrower must consider are:
Plan the loan process well in advance of need. In other words, don't wait until 30 days before your balloon payment is due to find someone to refinance your loan because gas stations and convenience stores have very unique underwriting requirements. If you have a loan that is coming due get a commitment to renew your loan 90+ days in advance. Do NOT rely on verbal commitments.
Talk to your accountant to get a very clear understanding of everything concerning your income and expense report. Have detailed explanations of onetime charges and/or repairs.

Gain control on payroll expenses and make sure that all taxes are current.

Detail both inside sales and outside sales. Know to the penny what your profits are, your cost per gallon, your percentages of inside sales, a breakdown on categories of 'other' income.

Detail cost for remodeling, including what the expected benefits will be after you remodel or make expansion improvements. Always have a goal in mind.

Understand specifically the environmental problems that might arise for your gas station. Make sure that the underground tanks are up to code and have been tested recently.

Understand market conditions for your gas station and convenience store, its marketability and location. Are values going up or down? Are gasoline sales growing or declining? Are inside sale growing or declining?

MOST of all, make sure that you work with someone that is helping you achieve your goal of financing. Work with a broker that has many resources verses a bank that has only their in-house underwriters that may or may not want your loan after you have spent two months of waiting. Borrowing money for your gas station business is a very personal experience and if you take the time to work with someone you trust, it can be a pleasant experience.