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Owning A Gas Station Is Not For Everyone...Gas stations (this property class also includes mini-marts attached to the gas stations, as well as oil change facilities) can be one of the most difficult properties to finance. Most local banks won’t touch them and most Commercial Mortgage Brokers have no experience in getting them financed.
Financing for these types of properties are usually done with conventional, SBA or hard money financing. Why are they so difficult to get financed? #1 Environmental Concerns Most lenders perceive a high risk with possible past or future environmental issues. The lenders worse fear is that the cost to remediate the property will exceed the value of the property. How to overcome this hurdle? A first step is to use the SBA’s environmental questionnaire to determine the current status of the property. Here is a sample of a SBA Environmental Questionnaire. A second step is to use an experienced environmental company to perform Phase I or Phase II site assessments. Just remember that these reports are usually good for six months, after that, most lenders require updated reports. As a future owner of a gas station, you should also be aware that under federal Superfund laws (CERCLA--the Comprehensive Environmental Response, Compensation, and Liability Act of 1980) and state superfund laws such as LUST/UST (Leaking Underground Storage Tank), you could be held liable for remediation costs, even if you are not responsible for the contamination. Just make sure you perform good due diligence when buying these types of properties. #2 The Borrower Most lenders rely heavily on the borrower’s experience, credit and available cash. To keep their default rate low, lenders want borrowers to have industry experience or at the least attended franchise sponsored training. If you don’t have any experience in this industry, then you might have to consider taking on a business partner, who does have the experience. Credit scores of the borrowers are also having an impact on getting financing. If you have a personal credit score that is below 600, you will have a hard time getting SBA or conventional financing (they usually offer the best terms). Your only solution will be to use a private lender or a hard money lender. In either case, the LTVs will be lower and the rates higher. Determining the cash flow of the business is crucial in getting a loan. Some sellers will not provide accurate or all of the income of a property on their tax statements. Make sure you request to have the past 3 – 4 years of their fuel gallon total to get a clearer picture of the property’s income. Owning a Gas Station & Convenience can be a very profitable business to own. And getting financing can be a pain but choose a good Commercial Mortgage Broker to help you get through it.
Gas Station Franchise...Top 5 Reasons They Fail
Return From Gas Station Financing To Commercial Property Types
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