GAS STATION LOANS
Obtaining financing for a gas station/convenience store has always been challenging based on the unique characteristics of the industry. In the mid-1980's the federal and state government tightened regulation of underground storage tanks (UST's), and this change had major effects on the lending market for gas stations.
Lenders became concerned about the effects of gasoline contamination on the market value of their collateral, as well as potential liability to the owners of adjacent properties. These environmental concerns continue to this day, and many lenders choose not to lend on this property type because of environmental risks. Fortunately, there are seasoned gas station/convenience store lenders in the SBA 7(a) market, and in many cases they can work with the SBA to get a loan approved on a property with past UST contamination. Since UST regulation has now been in place over 30 years, most leaking tanks have been replaced and most sites with contamination have reached a "No Further Action" status with their state regulators.
Another challenge with gas station/convenience store lending relates to the assets being financed. Most transactions in this property type include assets that offer little collateral protection to a lender, with the main issues being intangible business value and inventory. In most cases the underlying land, building, and equipment will not appraise for an amount sufficient to provide full collateral protection of the required loan amount. For this reason, conventional (non-SBA) financing can be difficult to structure for gas station and convenience stores. Fortunately, the additional credit protection provided by the SBA 7(a) guaranty is sufficient to make lenders comfortable with this property type.
Loan Amount: $500,000 to $5.0 million
Loan Purpose: Purchases, refinances to reduce interest rates or monthly payment, refinances with new funds for renovations, new construction.
Collateral: First lien position on real estate, equipment, and inventory
Interest Rate: Based on the Wall Street Journal Prime Rate, adjustable quarterly if the Prime Rate changes up or down.
Repayment Terms: Repayable over 25 years, no balloon payment (these terms are one of the main advantages of SBA 7(a) financing.
Loan-to-Value: Up to 80% of appraised value. Lenders will look for a down payment/cash injection equal to 20% of the project cost. Your down payment can potentially be reduced to 10% of the project costs if the seller of the property is willing to carry a second lien note for the other 10%. The seller note has to be structured properly to meet SBA requirements (give us a call for the details).
Gasoline Branding: Most lenders prefer locations with branded gasoline. A recorded fuel supply agreement may affect eligibility.
Loan Availability: Good. Most scenarios will fit the criteria of at least a few potential lending sources.