So, you've decided you want to buy an existing gas station for sale. However, you aren't sure exactly where to find the financing
you'll need or even how to start. I'm going to give you an overview of how to find the right bank/financial institution, SBA and conventional loans, and other financing options for gas station purchases.
Getting professional prequalified and vetted by a financing specialist for gas station financing in advance is VERY IMPORTANT! Many of my clients are referred to me from banks and financial institutions that have taken too long and the client/buyer has not only lost out on a "deal of a lifetime", but also on fees: $1,200 to $7,500 of expenses for due diligence & investigative consulting, escrow openings/lien searches, business and possible real estate appraisal fees, attorney fees for contract evaluation, etc. Bottomline - save time and money by getting prequalified upfront by a professional for this specialized type of financing!Individual Items You'll Need To Provide Financial Institutions:
- Last 3 years of complete personal tax returns.
- A one page resume of your recent work experience (usually the last 10 years).
- A compete Personal Financial Statement (PFS) detailing your personal income, assets, and liabilities.
- New Articles of incorporation (if you want to finalize your deal with this type of business structure).
- An explaination of any past bankruptcies (and discharge information) - either personal or business related.
- A copy of your bank statements (to varify the funds for the down payment/cash injection into the deal).
Items From Your Gas station Deal - The Financial Institution Will Most Likely Ask For:
- When buying a gas station you will also need all inspection and registration documents of the UST (Underground Storage Tank) from the seller if the station you are trying to buy has underground tanks.
- Purchase Agreement or Letter Of Intent (LOI) detailing the terms, training, etc.
- Escrow instructions, escrow or closing agent contact name, proposed deal closing date, etc.
- Complete tax returns from the gas station for the last 2 to 3 years.
- Copy of the current lease and any past addendums (if you're not buying the real estate along with the business - gas station).
- Any vendor or franchise agreements and contracts (especially if you're buying a "branded" station).
- Profit and loss (P&L) statements for the last 3 years.
- Interim financials for the current year (within a couple months from the estimated closing date).
- Current balance sheet.
- List of assets and equipment that will be included in the deal.
- A completed application and several forms signed (if you choose the SBA loan option).
- Monthly reports for gallonage and station revenue percentage broken out by: gas, mart, repairs, etc.
- Contracts for any current and past fuel providers, equipment leases, etc.
- When buying a gas station you will also need all inspection and registration documents of the UST(Underground Storage Tank) from the seller if the station you are trying to buy has underground tanks.
- A short business plan with one year financial projections (proforma) of the gas station you are buying.
Other Items That Will Typically Come Into Play:
- The financing institution will order a third party business valuation to make sure the business is not overpriced.
- Financing takes 30 days to 6 months+ depending on the financing you select, the lender involved, etc.
- Be patient - bumps with your deal will come up - work with professionals so they get resolved!
Sources Of Financing For Gas Station Purchases:
Banks and financial institutions can be very skittish about funding gas station deals - environmental concerns, the swings in gas prices over the last few years, etc. I've found that local and regional banks/financial institutions are more likely to offer the best financing for local gas stations purchases, rather than the bigger intitutional type banks (also these lenders if they do provide financing can take way too long - I've had clients come to me that have lost deals because of delays, etc).
Geography typically does not make a difference (I get financing for gas stations deals throughout the US) - many of my West Coast gas station financings are provided by East Coast and Southern lenders and financial institutions - what does matter in these deals is going to the right person at the right financial institution - one that likes the industry you are trying to get financed and one that hasn't had many "hits" in their loan/financing portfolio for those businesses in the industry you're trying to get financed.
SBA loan financing is great because the government guarantees a percentage of the loan and therefore banks are more willing to loan the money knowing they are not on the hook for the entire loan amount. They also come with long repayment terms (10 to 25 years depending if their is real estate included with the deal), favorable rates and lower down payments than conventional loans. The draw back to these types of loans is more paperwork, and the fact that it can take up to six months to get approved (only if you go to the wrong contact or bank that doesn't like to fund gas stations!).
The conventional loan
process can be less cumbersome and faster, but they are typically harder to get even with excellent credit. You may need up to 30%+ down, the business to be purchased needs to be VERY healthy financially and you'll have to put up sizable collateral, most likely your house and/or real estate investments. Even if you meet these requirements you still may not get the loan.
A business purchase financing professional will also be able to help guide you through the extensive paperwork and requirements of the SBA loan application process if you choose to go that route.
These professionals can also help you with some of the following forms of financing to help you bridge any gaps in funding that you may have to get your deal done.
Using Your Retirement Funds:
Using part of your retirement savings
to help close the funding gap for the purchase of a small to mid-sized business is an option. You can do so without incurring the taxes and penalties that come with an early withdrawal. Plus, the funds are generally available within 4 weeks. Many of my clients utilize this strategy for their down payment or cash injection into a deal.
The vast majority of business for sale deals involve some type of seller financing
. Seller financing is when the seller provides a loan to the business buyer. Usually, the buyer will make some sort of down payment (approximately 15% to 25%) down to the owner/seller, and then make installment payments over a specified time, at an agreed-upon interest rate, until the loan is fully repaid. This type of financing is often used to bridge funding gaps with more traditional SBA and commercial loans.
Friends And Family:
Many business for sale deals are partially funded by friends and or family members. However, you need to make sure that any investors or partners stay below a 20% equity in the business or they will have to become signers on any loan. Deal structure, contract language, and lender presentation is paramount in these situations.
Purchasing a gas station business (with or without real estate) can be a profitable investment especially if you purchase one with a convenience store as those types of establishments generated $343 billion last year. While Continued volatility in global crude oil prices will always be a concern, as long as people need to drive and need gasoline to power their cars, gas stations will continue to be a good investment opportunity. If you are interested in buying a gas station it is highly advisable that you hire a business purchase financing professional to help you get the funding you need to secure your deal.
About The Author:
For over 25 years Peter Siegel, MBA
has provided niche business purchase financial advisory and loan broker services with SBA Loans, Non-SBA Loans, Retirement Plan Conversions, Hard Money, Gap/Bridge Financing, Note Restructures, etc. He assists with financing for: Business Purchases, Business With Real Estate Purchases, Franchise Resale Purchases, New Franchise Purchases, Pay Off Existing Seller Notes, Partner Buyouts, Employee Buyouts Of Owners. Peter Siegel can be reached direct toll free at 888-983-1632 regarding getting professionally pre-qualified, advisory & loan placement services.
Categories: Business Purchase Financing, SBA Loans, Small Business Loans