Gas Station Financing - Construction
Financing For Gas Stations
If you want a test in patience, you've met your match. Gas stations and convenience stores
with fuel have never been the darling of the lending industry. Construction financing is even worse. There
are any number of reasons why this is the case.
1) The overall environment is not conducive to lending in general
2) The petroleum retail (C & G) business is not a favorite of the lending
3) Frequent cost overruns make construction financing more risky to a bank, especially if it
is a high advance (LTV)
4) Commercial construction lending is something where lenders tend to run hot and cold on and
when they run hot, it's usually for short periods of time.
5) The length of time it takes to construct (usually longer than anticipated) makes doing
construction loans prohibitive.
6) Lenders in all cases will consider this a start up business which is very difficult to
What are your options? First, if this is your first gas station / convenience store that you
have managed or owned, you will have a VERY difficult time getting financing. If you have a partner,
even with a minority ownership interest, it will be less difficult. Borrowers that currently own and
operate gas stations and convenience stores have the least difficult time obtaining financing because from an
underwriter's point of view, should the new business take a while to get off the ground, the borrower has income
from other sources and they are not totally dependent on the profitability of the new venture.
If you do not already own the land or have not already purchased the land where you intend to
build, it will be less desirable to a lender. The closer you are to being able to break ground, the closer you are
to having legitimate financing options. If you are still waiting for quotes from construction companies and
vendors, it will be less desirable to a lender. The closer you are to knowing exactly what your costs will be, the
higher your probability goes up of obtaining financing.
In most cases, you will be required to obtain a feasibility study. Spending a few
thousand dollars is money well spent and will most likely make you aware of your demographics and competition you
may or may not be aware of. If an oil company or jobber has done their own study, they will have their own
motivation to bring you on as a client. A hands off third party report will in most cases be more reliable.
You should make yourself prepared to accept private money financing for the project and then get
permanent financing. If you accept private financing, typically you will pay higher rates (8-10% interest only)
which you will be for 3-12 months, depending on the anticipated length of time for construction. Although the rate
will be higher, it might be the quickest option for financing. Be prepared to come up with more out of
pocket money for the private financing and obtain a higher advance on your permanent loan. It is possible that you
can get conventional construction financing, but do not expect to get more than a 70% advance of construction
costs. If you are pursuing SBA 7(a) or 504, it is possible that you can get a 80-85% advance, but do not hold your
Be prepared for any of your sources to sour on the deal. It isn't necessarily that your deal is
bad but that lenders are very mercurial on construction loans. Always work multiple sources on gas station construction financing. Even doing this, there are no guarantees on gas station construction
Contact PetroMAC today if you need gas station or convenience store construction financing. We
can also assist you in negotiating your purchase agreement, your fuel supply agreement with a jobber or with an oil
company and we can assist in negotiating your agreements with all your vendors. We also can assist you with your
business plan. Visit our site at http://petromac.com
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