Gas Station Loans – Can You Even Run A Gas Station
While the lending environment for commercial financing is slowly but surely thawing, it’s still very difficult at the least and perfect packaging of a transaction is a must. Financing a gas station is at the top of the list of properties difficult to be financed. Gas stations have never been the darling of the lending industry, and even more now.
Over the past few years, the number one and two common denominators in default for gas station and convenience stores have been 1) Borrowers not putting enough equity into the transaction making it easier to walk away from a business and 2) Borrowers having insufficient direct industry experience.
Many borrowers will get money from friends, relatives and “people that love them” in order to come up with equity for a purchase. While this in and of itself is neither illegal, immoral or unethical, from a banking point of view, it is unwise to lend in these circumstances. If your own personal skin into the deal is minimal, it simply is easier to walk away from a business when you have little into the deal. Now lenders are wanting to see more personal money into a deal, less home equity lines, less gift letters and more available liquid cash. This does not mean that these other sources of equity can not be used, just less of it. The days of putting nothing into a deal, with a large seller held second and minimal equity are for all intents and purposes, gone.
Second, lenders are scrutinizing gas stations loans more when it comes to the experience level of the buyer/ borrower. If a borrower has worked in a 7-Eleven for ten years, but has not paid invoices, hired, fired, priced fuel, ordered inventory, etc. they do not view this as direct industry experience because the borrower did not perform managerial or owner duties in this capacity. They might as well have been a clerk at Victorias Secret because it just would not be viewed as sufficient industry experience.
These two issues can kill a deal fast. This does not mean there are not alternative solutions, but these will be one of the first two things on the radar screen of an underwriter. The cash flow of the ultimate business will almost always be the most important, but you’ll get stuck on start without solutions to these situations.
Harold Jaynes has been in the business of financing gas stations and convenience stores since 1998. PetroMAC has closed hundreds of millions of dollars of gas station loans. Visit http://petromac.com to learn more about financing a gas station.
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