How to Finance Gas Stations
As an entrepreneur, you may look into the gas station business as means to generate wealth and establish financial independence. Most likely, you will require debt financing to close these large deals. Over time, the interest expenses associated with your gas station loan may add up to hundreds of thousands of dollars. To secure the best deal, you must improve the strength of your personal finances while avoiding the distinct risks associated with gasoline retailing.
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Instructions
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Identify a gas station for purchase that matches up with your financial objectives and budget. The gas station may sell fuel only, or be attached to a convenience store and mechanic shop. PetroMAC says you can structure a deal to purchase the business only -- without the underlying real estate. As a beginner, you could hire a business broker to help you find gas stations for sale.
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Put down earnest money to be held in escrow by a third-party trustee. The earnest money may be less than $5,000, but it proves that you are an interested buyer. From there, the gas station owner should open his financial books so you can do a detailed profitability analysis of the business. If you choose to move ahead with the deal, the earnest money can be put toward a loan down payment.
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Hire an appraiser to price the gas station business and its real estate. The gas station appraisal may take three to four weeks. Be sure to have the property inspected for cracked gasoline tanks and pumps that may cause environmental damage. Prospective lenders are concerned that gasoline leaks would cost you tens of thousands of dollars to clean up and repair. Further, municipal officials may shut down your business due to environmental concerns.
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Review your own personal finances prior to applying for a gas station business loan. Order a copy of your credit report and FICO score from Experian, Equifax or TransUnion. A FICO score above 750 is excellent and provides access to diverse loan products at low interest rates.
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Negotiate a purchase price for the gas station. A gas station may sell for hundreds of thousands of dollars. Be prepared to make a cash down payment worth 10 percent to 20 percent of the station's purchase price. A bank wants to work with an owner that puts his own money on the line.
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Contact representatives from your current bank to work out a gas station financing deal. To complete a loan application, you will need both personal and business financial statements.
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Work with a business broker to identify lenders that specialize in gas station financing. Be advised that big oil companies such as BP provide online resources to help franchisees get started in the business.
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Tips & Warnings
As a beginning operator, you may need to put together creative financing packages to raise money. For example, you could sell shares of equity in your business to a gasoline wholesaler for cash. In exchange, you may agree to deal with this wholesaler exclusively.
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- Photo Credit high price of gasoline image by Chad McDermott from Fotolia.com
