Tips About Getting Gas Station Financing | Free Finance Articles

Financing service stations are hard, complicated and subsequently most conventional finance companies and banks don?t consider financing a gas station or convenience store properties. Why?

1. Service stations, convenience store and carwash business is a ?cash business? and no company owner would declare the cash in the tax returns. Consequently, it is impossible to substantiate profit and figure out the debt to service ratio for the loan
2. Service station properties have environmental risks. Those that are clean have a greater risk of environmental problems in future
3. If the financial institutions repossess the gas station properties through foreclosure, they?re not able to run the business. Unlike income producing properties such as apartments, the banks can?t get a property manager to manage the gas station.
4. There are more issues such as low fuel profit margins, restrict dealer or franchise contract which makes the bank uncomfortable in evaluating
   gas station financing

There are few lenders that would consider gas station loan and they mostly use SBA loans to finance the property because federal government guarantees major portion of the loan. Despite the government guarantee, the lenders are certainly conservative in underwriting the transaction. To be honest with you, for those who have found a service station property to purchase, financing is quite possible but would be a pain so be ready.

You will find niche lenders that specializes in gas station financing and convenience store loan. Some would go as high as 80% loan to value of the property and they use the real estate, business and equipments as collateral in underwriting the project. Underwriter looks at the tax returns, income statements and sponsors? credit and experience to analyze the credit worthiness of the transaction.

Once the borrower has got the credit approval, the lender moves forward with the due diligence including appraisal, environmental reports, feasibility studies, title search and so on. After lender is content with all the due diligence and all the outstanding issues are resolved, loan documents will be drawn and subsequently loan will be funded. Now, keep in mind that borrowers cover the lenders underwriting costs and due diligence fees. These fees may be up to $10K or even more and usually non-refundable. Lenders usually charge some fees which may be as high at 3% or more of the amount borrowed and the rates are higher as a result of risk the financial institution takes. So it?s essential to evaluate all these fees and expenses to make certain it?s wise for you to buy a gas station property.

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