Gas Stations - Everyone wants to own one!

It seems that most of  our new business contacts are for the purchase of gas stations lately.  The problem is that gas stations are very difficult to finance due to numerous rules and regulations.  Gas Stations are not the lenders favorite loan today by any stretch of imagination.  In fact most lenders are not even entertaining a gas station loan for a new client.

So how does one finance a gas station acquisition?

SBA Loans and B&I loans are being used to finance Gas Stations, but only certain brands, and they must be “clean”,  no open case for any environmental issues at all.  All gas stations are being subjected to a Phase I and II environmental review if not new before a lender will give final approval for the loan.  Open cases must have no further action letters for a lender to even consider the loan.

So for argument discussions only lets assume you are trying to finance the acquisition of the real estate and the business opportunity as well for an existing station.  The first question is what brand of station.  The reason for this question is that there are Franchisers that preclude supply agreements from being transferred to another jobber or supplier, and therefore that is in violation of the SBA.  Other Franchisors will not execute the SBA indemnification agreement.  Others have language in their UFOC now known as the Franchise Disclosure Document that preclude SBA financing due to certain clauses in their agreements.

The next issue that will be looked upon is the ownership experience of the potential borrower.  The more gas stations that he has owned and operated the greater likelihood of a lender wanting to close the loan.  The strength of the station will next be examined to determine that the station cash flows.  If it is a relatively new station, the lender will want to see that the clients other station can cover the debt service.   Hence the need for experience and prior ownership.

For a new owner of a station, liquidity is paramount.   The lender will want to see that post closing a client has at least six months closing  liquidity.  Also that the borrower has substantial assets to be used as collateral for the loan, especially if there is no real estate in the purchase transaction.

Gas Stations - Everyone wants to own one!

It seems that most of  our new business contacts are for the purchase of gas stations lately.  The problem is that gas stations are very difficult to finance due to numerous rules and regulations.  Gas Stations are not the lenders favorite loan today by any stretch of imagination.  In fact most lenders are not even entertaining a gas station loan for a new client.

So how does one finance a gas station acquisition?

SBA Loans and B&I loans are being used to finance Gas Stations, but only certain brands, and they must be “clean”,  no open case for any environmental issues at all.  All gas stations are being subjected to a Phase I and II environmental review if not new before a lender will give final approval for the loan.  Open cases must have no further action letters for a lender to even consider the loan.

So for argument discussions only lets assume you are trying to finance the acquisition of the real estate and the business opportunity as well for an existing station.  The first question is what brand of station.  The reason for this question is that there are Franchisers that preclude supply agreements from being transferred to another jobber or supplier, and therefore that is in violation of the SBA.  Other Franchisors will not execute the SBA indemnification agreement.  Others have language in their UFOC now known as the Franchise Disclosure Document that preclude SBA financing due to certain clauses in their agreements.

The next issue that will be looked upon is the ownership experience of the potential borrower.  The more gas stations that he has owned and operated the greater likelihood of a lender wanting to close the loan.  The strength of the station will next be examined to determine that the station cash flows.  If it is a relatively new station, the lender will want to see that the clients other station can cover the debt service.   Hence the need for experience and prior ownership.

For a new owner of a station, liquidity is paramount.   The lender will want to see that post closing a client has at least six months closing  liquidity.  Also that the borrower has substantial assets to be used as collateral for the loan, especially if there is no real estate in the purchase transaction.

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