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Gas Station Business and Real Estate Loans
What are the eligibility requirements on gas station business and real estate loans. What are the requirements to get a gas station business and real estate loan? How do you qualify and get pre-approved? Do you need experience? Can you get trained from the seller? What are the EPA concerns, permits, credit scores, reserves, income, documents, and other requirements?
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Requirements for Loans for Real Estate and the Business of a Gas Station
- Purchasing a gas station requires buying a business and a piece of commercial real estate, both of which need financing.
- Here is a detailed list of qualifying criteria:
Primary Qualification CriteriaCredit score Criteria
- Conventional lenders: Usually a minimum of 680 or higher.
- SBA loans: At least 650 (some can go down to 620, but not many).
- Hard money lenders: Interest-only loans are available with credit scores of 600.
Years in Business
- Most lenders prefer two or more years of managing a gas station or convenience store.
Some lenders may accept:
- Other related retail management or business management work
- Employment in the oil industry
- Seller training contracts (we will discuss later)
Initial Payment
- Conventional: At least 25%-30% down payment
- SBA 7(a): 10%-15% down payment
- SBA 504: Startups pay 15%, established businesses 10%
Seller Training Provisions
- Lack of experience may be accepted if the seller:
- Gives documented training for a certain period (usually 4-8 weeks)
- Hire an experienced manager who can run the business.
- Training is built into the purchase agreement.
- Demonstrates sufficient business management skills.
Monetary Criteria
Sufficient Funds
- In most cases, 6-12 months of operating expenses and loan payments are set aside.
- First-time owners may need to set aside more money.
- Some lenders consider this a percentage of the amount borrowed (10-15%).
Debt Service Coverage Ratio (DSCR)
- 1.25x for most lenders (the station must produce $1.25 for each $1 debt payment).
- Some lenders may require a 1.35x coverage ratio or even higher with novice owners.
Personal Financial Requirements
- No bankruptcies or open financial cases for the past 5 years.
- Proof of employment for the past 12 months.
- Not too many debts on record.
- Typically, personal guarantees are necessary.
Environmental Considerations
Environmental Assessments
- A Phase I Environmental Site Assessment (ESA) is always needed.
- Phase II ESA in case contamination is suspected.
- If it is confirmed that a site is contaminated, I must have a remediation plan in Phase II.
- Underground Storage Tank (UST) Requirements
- Documentation of the age and condition of the tank.
- Availability of leak detection systems.
- Must meet today’s standards.
- Tanks must be insured.
EPA Compliance
- Documents showing current compliance with environmental standards.
- List of previous breaches or repair work done.
- Operator certification proof.
- Spill control and containment plans.
Documentation Requirements
Business Documentation
- 3-5 year business tax returns for already operating stations.
- Profit and loss statements.
- Current balance sheet.
- Inventory reports.
- History and volume of fuel sales.
- Convenience store sales analyzed.
Personal Documentation
- Personal tax returns for the last three years.
- Personal financial statement.
- Relevant work experience CV.
- A business plan is particularly important for novice buyers.
- Proof of funds for the down payment.
Permits and Licensing
Required Permits
- Permits to sell fuel and food (only if needed).
- Permits for alcohol and tobacco (only if needed).
- Local and state business permits.
- Permit from fire departments.
Insurance Requirements
- Insurance for environmental issues.
Commercial Property Insurance
- General liability insurance
- Insurance for business interruptions
Workers’ Compensation Loan Program Options
- SBA Loans
- 7(a) program: $5 million maximum, 10-25 year terms, any purpose.
- 504 program: The real estate portion is up to 25 years.
- Working capital loans for business operations.
Conventional Commercial Loans
- Most commonly require a 20-25% down payment.
- Term of 5-10 years with balloon payments.
- Financials are usually stronger than SBA loan options.
Specialized Petroleum Lenders
- Industry-specific lending programs.
- There may be looser terms for more seasoned operators.
- Often, they have streamlined underwriting for gas stations.
Pre-Approval Process
- Personal financial information and relevant business experience need to be compiled.
- Approach lenders with gas station financing experience.
- Complete primary application.
- A conditional approval letter is given.
- Begin property search with financing parameters in place.
Considering these businesses ‘ environmental and operational issues, working with banks that understand gas station financing is vital.