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Looking To Buy A Gas Station - Better Have Some Bucks

The past five years have seen a rise in defaults and foreclosures in the convenience and gas (C & G) industry. You're out there looking to buy one eh? Owning a gas station or convenience store can be very profitable but it's sure getting a lot tougher making a living. Unless you live in a cave, you've probably noticed that gas prices have gone sky high. In case you didn't know, the people who own the mom and pop gas stations are making LESS money instead of more.

One of the main reasons for the rise in defaults and foreclosures is that financing was a lot easier years ago. People could purchase a gas station with 10% down (many times THAT was borrowed also) so when times got bad, people just walked away. Competition from hypermarts (Costco, Sams Club, Albertsons, etc.) have driven down operator and dealer profits and has taken traffic away from their inside sales. It's easier to walk away from a business when you don't have a significant capital investment than if you've put in 20-25% of your own hard earned money.

If you're looking to buy a gas station or convenience store, count on having at least 15% of non-borrowed money as a down payment if you're applying for a conventional or SBA loan. Conventional financing will usually require more than15%. This is not an absolute but these loans are looked at now with much more scrutiny from the qualification of the borrower and from the cash flow of the business. One of the most common denominators of defaults and foreclosures is that the borrowers do not put enough of their own money into the transaction. Be prepared with sufficient equity into the deal or be prepared for a decline.

Ways to mitigate this is to take on a partner or provide additional collateral to the lender you are dealing with. Frequently a fuel supplier will also provide equity in return for a long term fuel supply agreement, which is normally ten years.

The days of robbing Peter to pay Paul in order to come up with down payment money are over when it comes to financing this asset class. Good luck in your efforts.

Harold Jaynes is with PetroMAC, one of the premier sources for financing gas stations and convenience stores. Learn more information about this at http://petromac.com

Article Source: http://EzineArticles.com/?expert=Harold_Jaynes

Article Source: http://EzineArticles.com/988398

 
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