Major Challenges in Obtaining a Loan for Gas Stations
Several customers use cash to purchase at convenience and gas shops, but it is possibly tough to completely record and show your overall income. You may need to use your tax reports much, to be eligible for the loan.
Conventional banks would refuse a loan in one of these three situations.
- If the documents containing your business dealings show a low flow of cash or decreasing sales.
- When you have no collateral
- In the event of you not having much experience in a managerial position
Another vital element to qualify for a conventional loan is the credit score. Therefore, in the case you have experienced monetary business challenges, then it might just affect your approval.
Conventional bank loans usually come with a 20-year term and a clause that requires making a balloon payment at either the five-year or ten-year point. Does your loan agreement have this clause? If yes, it possibly means you would need to finance the loan again, before paying it fully and handle an added round of related closing costs.
Is your business a start-up or a relatively new one? If yes, it is virtually not possible to have the loan approval. As per Foxbusiness.com, several banks require business applicants to have 3 years of financial information, to grant them the loan. This means you are unlikely to get it.
A loan is used to provide funding for an existing entity/expand it or to buy a gas station-concerned business/acquire property for a fuel station. Otherwise, fuel station owners might require only working capital (WC) for buying equipment or inventory.
While these are ‘volume businesses’, gas station/corner store combinations and fuel stations tend to require capital infusions. Business owners may look for working capital as fuel station loans, credit lines, and other kinds of commercial financing which can help mitigate their cash crunch.
Most fuel station owners get WC in crunch periods to sustain their operations seamlessly throughout the year.
Getting station loans is possibly trickier than other sorts of business financing because you have to deal with challenges that apply exclusively to these sorts of businesses.
You will have a limited number of lenders to choose from, as compared to other kinds of businesses. The lenders that cater to gas station borrowers will be bothered about environmental matters that may affect the business. By its very nature, a fuel station business has seen environmental risks that do not exist in several other sorts of commercial undertakings. A gas station property is generally limited to one use, which affects the perceived value of it with regards to recovering funds, should the business fail.
Gas station franchise and start-up funding are potentially big investments. Anyone who has bought a site or has arrived at a lease contract should know that it takes much money to establish a business. Fortunately, various sorts of services and start-up lending options are available to fuel station owners.
Kinds of Fuel Station Loans
The partners of a multi-service fuel station made up of a corner store and auto body shop tend to require funds to recruit store clerks, mechanics, and station attendants. These businesses experience cash flow problems every now and then.
Banks are usually not willing to provide funding for gas stations, so alternative financing platforms such as Building Block Capital arrange various, potentially helpful financing options. Some of these are commercial loans, cash advances, and credit lines that allow businesses to run in an efficient manner.
Loans for Fuel Stations: Exploring Beyond the Bank
A bank is among the best financing sources for every business. Anyhow, as suggested earlier, a conventional bank loan is perhaps out of almost every fuel-station business owner’s reach. Fortunately, they have several substitutes for conventional bank loans. This could usually cause you to explore many purpose-specific products. In this situation, it is perhaps best to seek innovative loans that fit your various business requirements, as opposed to a conventional loan that offers a lump-sum payment.
The lenders could usually be financing sources if banks are not ready to create a usual fuel station loan for you. These financial institutions examine your business scope to a greater degree than a perceived risk in this sort of loan. These institutions provide many financing options, including fuel station loans which are potentially more flexible than SBA or bank loans.
A borrower, like you, must contemplate a lender that can adjust fittingly to your current financial requirements and future expansion. Several banks turn down numerous fuel station loan applicants. Therefore, the non-bank institutions look to serve gas station businesses and have made practices specifically to satisfy the requirements of the owners.
- The alternative institutions may not only provide the loan but also realize the characteristics of your fuel station business. These understand that the business receives cash for most products, plus they can walk you through the application procedure.
- The institutions usually provide a quicker application process. Rates of interest can be a bit higher than what a bank provides, but the alternative lender is more likely to approve your loan.
- The time for the loan approval is usually less, plus you can easily navigate the processes of applying for it and having it approved.
- Alternative lenders frequently explore your business’s potential more as compared to your credit history or score.
Financing an Existing Fuel Station’s Acquisition
You may discover that purchasing the business is something that fits your personal preferences more. This move comes with unique challenges, plus you might just need to pay a ‘premium for goodwill’. Anyhow, you may be unsure where to discover the financing that you will require or the way to start seeking it. Let us begin with a summary of the way to discover the best financial institution, conventional and SBA loans, plus other financing types for gas station acquisition.
Receiving any sort of business financing is more of a process. Understanding what to anticipate before getting into this process, will raise your likelihood to get the funds punctually. This means collaborating with financial professionals who will be capable of guiding you through this process, avoiding delays and telling you about the product you become eligible for. Getting this sort of knowledge can keep you from spending thousands of US dollars or more as you negotiate the acquisition.
The key to your success is having a financial specialist examine your financing eligibility and getting preapproved.
Basic Documents Required For The Loan
- Full personal tax reports of the previous 3 years
- A single page that sums up your work experience in the recent past
- A full personal financial statement that outlines your income, liabilities, and assets.
- The new certificate of incorporation (in the event you wish to complete the deal with a corporation structure).
- A statement that explains any previous bankruptcy, and discharge details, related to your business or your personal life.
- Bank account statement copies (to check the funding for the capital injection or the down payment on the deal).
Does the gas or service station that you are acquiring have an underground storage tank? If yes, you would have to possess every proper inspection document and registration document of that UST when acquiring the business. You would also have to produce certain or all the documents mentioned below.
o The balance sheet of two years, which includes the present year’s document and the one starting from the first day of the current financial year to now.
o Escrow instructions, which include a closing date, an escrow agent, or bank agent’s contact details.
o Copies of every tax return of 2 to 3 years submitted for the business
o Information on every asset that is part of the deal, which includes equipment, accounts receivable, and inventory.
o Do you plan to not buy the property on which the fuel station sits? If yes, present every current document related to the lease, which includes any rider added to the primary lease contract.
o The business’s profit and loss statements for the past 3 years.
o Purchase agreement copies that detail the terms, every party to the contract, training, and so forth.
Business Operations Documents
- Three years of agreements for every previous and present fuel provider, equipment lease, and vendor.
- Every past and present franchise or vendor agreement, plus contracts for the last three years (particularly when purchasing a ‘branded’ gas station).
- Three copies of finished applications containing original signatures (when selecting an SBA loan).
- Month-wise station revenue reports.
- Agreements for any previous and present fuel provider, equipment lease, and so forth.
Regulatory and Third-Party Papers
- The paperwork related to the UST’s inspection, plus its registration, if there is an underground tank at the gas station you plan to purchase.
- Your business plan’s short section that summarizes the plan, with 2 to 3 years of monetary projections of that gas station.
- The lender will request a third-party’s market or business appraisal. The lending institution will need it to determine not just the gas station property’s market value but also the sale rates for similar entities that can be compared.
Conventional financing tends to take 30 to 180 days, according to the form of financing you choose, the lending institution concerned, and so forth. You are almost certain to have delays, so be sure to interact with financial professionals so that these are resolved fast.
Where To Get Funding For Fuel Station Acquisitions
As suggested earlier, traditional lending institutions are potentially conservative about financing fuel station deals. Gas price fluctuations, environmental concerns, and so forth are likely to affect the process of loan determination. Several bigger lenders lack the skills, as well as knowledge of fuel station businesses, so the former hesitates to lend to the latter. Regional banks make almost every gas station loan, so you have a greater chance to be approved from one of these institutions than the larger ones.
Geography makes a difference only if a financial institution is banned from doing business or not licensed to do it in a particular US state. Anyhow, the above is turning into a situation that no longer exists, as alternative lenders are not subject to the regulations identical to several banks.
There are more options than before, so it is very important to discover the best financing product for your specific requirements. Different lending institutions provide different sorts of financial products, so you must know what they most commonly offer to be prepared while working with the institutions.
Loan schemes specialized for gas stations are on offer at the SBA. These are potentially flexible schemes that enable a rather high amount of financing when the deal involves collateral. It is possible to have up to 90% LTV (loan to value), 20% more than what conventional banks offer.
Anyhow, SBA’s loan has some downsides. One of these drawbacks is that you might find the scheme prohibitive in the event of needing the funding fast. Besides, the maximum loan processing time can be 90 days. The SBA partially guarantees the product, which means you will have to produce extensive documentation. Gathering and reviewing the documentation will take a while for you. The SBA may consider your resume, credit, industry experience, and business plan when determining whether to grant you the loan.
You may have the best payback terms and interest rates on SBA's loan. Besides, the fact that a government institution guarantees the loan, itself reduces the lending risk for financing institutions.
The loan processing is potentially quicker and less cumbersome as compared to government financing. On the flip side, it is usually more challenging to get the loan than government financing, albeit you have excellent credit. It is much more challenging for a gas station’s owner, due to the industry concerns. A standard loan scheme may have the following requirements from you.
- Putting down as much as 30% for the loan;
- Your to-be-acquired business being at an extremely healthy financial state; and,
- Putting up considerable collateral, which will most possibly be your real estate and/or residence.
Despite meeting the above-mentioned, you may not obtain the loan.
Do You Require A Financial Advisor’s Help?
A business acquisition financing professional can familiarize you with the extensive documentation, as well as the conventional loan or SBA loan requirements. The professional can also assist you regarding some of the following financing options, to aid you in bridging your possible funding gaps to close your deal.
Kinds Of Financing Sources
Are you keen on purchasing a US-based gas station? If yes, we would recommend hiring a financing professional for assistance in sorting through the possible funding options to help complete the deal. To help you start doing the business, here is a list of ways to collect enough funds to complete that gas station acquisition.
It is possible to acquire the business with the money available in your retirement account. Doing this means that you will not incur any early withdrawal tax or early withdrawal penalty. Besides, those retirement funds will be available to you in a matter of days.
Almost every ‘business for sale’ deal involves seller financing of some form. It essentially means the purchaser getting monetary assistance from the seller. The buyer, you, will put down an amount, and then pay installments over a stipulated period, at an interest rate that you and that seller agree, until full repayment.
Relatives and friends finance several gas stations acquisitions. An American fuel station is possibly a lucrative investment, particularly if it sits on a considerable piece of land. Your loved ones will often be keen on learning regarding this opportunity, but be sure to tell them the risks and rewards concerned. When formally agreeing to make the purchase, you should confirm that every partner or investor has a below 20% ownership stake in that business. Having more equity in it will result in them co-signing the financial arrangement.
Deal structure, lender presentation, and agreement language are more important than anything else when financing the business thus.
Financing your US gas station should not result in your own assets being depleted. It should not take much time for the lender to approve this business-purpose loan, either. Working with a non-bank lender means that you could get the funds in some days. Anyhow, when it comes to this financing arrangement, be sure to peruse the lending contract to know what the funder expects from you, the business owner.
Alternative funders offer monetary assistance quickly and conveniently, so several fuel station owners work with them. The funder handling the process over the internet or phone simplifies completing the transaction for the owner.