Key Challenges of Getting Gas Station Financing

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What to keep in mind while buying a gas station

Many individuals considering entrepreneurship decide to go into the gas station and/or convenience store industries. in fact, according to Association for Convenience and Fuel Retailing (NACS), there are more than 150,000 convenience stores in the United States in 2023 and 79% of them sell motor fuel. The number of successfully operating gas stations in 2023 has increased by more than 1.5% over the previous year, which may indicate strong growth potential in the industry.

One advantage of going into business as a gas station operator is geographic flexibility. However, before starting a business plan or loan application for startup financing, small business owners must decide which locations are the most suitable for them. Texas, California and Florida are currently named as the top states for starting gas stations with convenience stores, while Oklahoma and South Carolina top the list of US states with the most gas station foot traffic.

Some other factors to consider when planning a gas station business include:

business model

Getting started in the gas station business looks different for every entrepreneur. Some business owners choose to build or purchase an independent gas station, while others decide to purchase a gas station franchise. Of course, like any other business decision, each business model has advantages and disadvantages. The benefits of buying a franchise can be a built-in customer base and corporate support for the entrepreneur, such as consulting, marketing strategies and financial support. Independent gas stations, on the other hand, offer entrepreneurs more flexibility and choice when it comes to location, hours, business name, and products and services offered.

Place

Chances are, by the time you decide to buy a gas station, you’ve already settled on a city and state in which to open your new business. However, there is more to a location than just a zip code. Gas stations need to be set up at a location that is convenient for commuters as well as local residents. While it is important to create a flow of regular customers, there is ample opportunity for gas stations located close to highways and interstates to gain business from truckers, out-of-town commuters and fleet vehicles.

sources of income

Since there is a lot of competition in the gas station industry, Profit from sale of gas There are very few. Station owners don’t have a lot of flexibility when it comes to gas prices. If the price of gas is too high, customers will just keep walking to the next corner station. Adding additional sources of revenue, such as a car wash, snack bar, automotive repair and service station, or grocery sales, is one of the best ways for gas station owners to generate additional profit. When creating your business plan, consider what other successful stations offer or what services or products may be lacking in the area.

Types of Gas Station Loans

As the business plan for your new business is finalized, you will also need to consider how you are going to finance your new venture. There are several funding options available to new business owners that work well with either a franchised location or an independent station. Some franchisors also offer private financing options or vendor financing to their franchisees.

Term loan

A term loan is a traditional arrangement where the borrower receives a lump sum amount in advance and agrees to repay the loan as per the repayment terms. Interest rates for term loans can be fixed or variable, where they fluctuate based on market rates. Term loans can be either secured with collateral or they can be unsecured, where no collateral is required. Borrowers may still be required to attach a personal guarantee or provide a down payment for an unsecured gas station loan.

equipment loan

The equipment required to operate a gas station depends on the type of location and the services offered. However, if you are buying or building an independent station, equipment financing can be a good resource for financing storage tanks, pumps, refrigeration, and more. Equipment loans can also be used to purchase computers, computer software, point-of-sale (POS) systems, automotive repair machinery, and other business equipment. Since the property serves as collateral on the loan, equipment financing may offer lower interest financing. The term of the loan is determined by useful life of property.

sba loan

SBA loans are a business financing option for small business owners where the funding is partially guaranteed. US Small Business Administration, There are several different SBA loan programs, depending on the intended use of the funds, the creditworthiness of the borrower, and the amount of the loan desired. SBA loans typically require good credit and offer lower interest payments and longer repayment terms than other lending options.

Some popular loan programs available through the SBA are:

• SBA 7(a) loan – Approved credit lines of up to $5 million that can be used for large purchases, working capital, and refinancing high-interest loans.
• sba microloans – Allows up to $50,000 for business needs, depending on the approved business plan
• sba express loan – Approved borrowers receive up to $350,000 to use as working capital.

commercial real estate financing

Real estate financing may be the best option if you choose to purchase an existing gas station. This type of financing can be used to purchase land, buildings, convenience store space, or to finance new construction. Real estate loans offer low interest rates and flexible terms, depending on the loan amount, the creditworthiness of the lender and borrower.

business line of credit

A business line of credit is not a loan, but a type of revolving credit that works like a business credit card. Approved borrowers are provided with a maximum credit line and can then draw on that credit line any time they need capital for a major purchase, upgrade or working capital. Any funds withdrawn are repaid with monthly payments that include financing costs calculated using a fixed or variable interest rate. When the balance is paid off, the money becomes available again.

crowdfunding

Crowdfunding can be a way to raise capital to buy a new gas station or buy into a franchise without loan approval. It works when an individual or business owner collects many small contributions from different investors or donors. Most crowdfunding is done using platforms like GoFundMe or kick, Contributors can expect nothing in return or invest money with the understanding that they will be rewarded.

business credit card

Business credit cards are a great financing tool for startup station owners or experienced fuel store operators who want to have credit available in case of unexpected expenses such as repairs or large purchases. Credit card financing costs can be higher than loans because interest rates are generally higher.

gas station financing challenges

Getting a loan for a gas station can be more difficult than other types of small business loans. The following are challenges specific to the nature of this business, but it is all possible to overcome with some research, persistence, and the right lender.

• Documentation – A large percentage of gas station purchases are cash sales. For this reason, gathering the necessary documents to obtain a small business loan can be difficult for startup entrepreneurs. Gas station operators often must rely on income tax returns and excellent financial records to qualify for business financing.
• Investment Gas stations are significant investments that usually require a lot of capital. Taking a business loan will require securing personal liabilities and having faith in the industry through the right type of business loan. Fortunately there are a variety of start-up financing and service financing options available to station owners, if you know where to look.
• inconsistent cash flow Gas stations are not seasonal businesses, but cash flow can vary greatly from month to month, especially for new business locations. This can make it challenging to get approved for traditional bank or traditional loans. Working with a lender experienced in similar financing arrangements can help entrepreneurs access 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. Are.
• startup jerks Some business financing options, such as SBA loans and traditional bank loans, require a specific amount of time in business. This is challenging for new business owners because they have not established a business credit history and cannot provide documentation showing two years of annual revenue. Working with an alternative lender on startup financing for gas stations is the best way to recover from this setback.
• environmental concerns – is unique environmental due diligence Required for gas station buyers, environmental exposure to pollutants and toxic spills into the air and soil can make loans difficult to obtain. Working with a lender who has industry experience is the best way to overcome financial constraints caused by environmental issues.

How to get a gas station loan

While there are many great options for gas station financing, it can be overwhelming to know where to start. The loan options, documentation requests and eligibility requirements that new gas station operators face will depend on the type of lender they work with.

Where to get gas station loans

Financing options for gas station businesses include franchise financing, traditional lenders, such as banks and credit unions, and alternative lenders. Entrepreneurs in the convenience and fuel industries may have difficulty accessing capital through traditional banks due to the challenges previously mentioned. Usually, gas station entrepreneurs have the best luck working with alternative loan providers like Biz2Credit. here’s why:

• Alternative lenders have experience with startup financing and gas station loans, so they understand how businesses work and can effectively guide applicants through the loan process.
• Working with the right lender will save a lot of time. Alternative lenders offer a faster application process, which can usually be completed online.
• Alternative lenders consider future income potential in addition to credit, so owners or entrepreneurs with poor credit scores are more likely to be approved.

Documents Required for Gas Station Loan

To expedite the loan approval process, borrowers can collect some basic documents before completing the loan application. The following list includes common documents that are requested by lenders, but contact your lender for a customized list.

• business plan
• Three years’ business and/or personal income tax returns and financial statements
• Inventory of personal and business assets
• Loan programs for business and personal loans, cash advances and financing agreements
• Professional resume highlighting the past work history of the borrower
• Legal documents including articles of incorporation for the new business entity
• Bank details for all personal and business bank accounts

key takeaways

Buying a gas station is a great way for first time or experienced entrepreneurs to make a lot of money and build a successful business. Once you decide whether you are interested in purchasing an independent station or a franchised location, you can begin to consider other factors such as location, price and financing options.

No matter the specificity of your business plan, working with an alternative lender, such as Biz2Credit, is a great way to review multiple loan offers and find the best fit for your business needs. Georgia gas station owner Rajesh Jivani turned to Biz2Credit after being turned down by a traditional bank and was able to quickly obtain a business loan and cash advance to cover the costs of expanding his business.