Recent developments in the petroleum retail industry and in the securitized lending market have necessitated the need for stricter underwriting for acquisition financing and refinances.  Capital was abundant in the late nineties, but due to a string of high profile convenience store chain bankruptcies, environmental claims, high default rates among franchise convenience store loans and the collapse of securitized lending within the petroleum retail industry, lenders are exercising much more due diligence than ever before.  Most banks and lenders avoid the market totally.  It is important today, now more than ever, to deal with a company that understands the intricacies of the industry and its cyclical nature. Operators, dealers and jobbers face unique financing issues and as such, qualified individuals and companies should be consulted and retained.  Capital is still definitely available to petroleum marketers.  Newly introduced short term/bridge financing programs and revised stated income guidelines have re-introduced aggressive underwriting to the marketplace.

The criteria that lenders look at to evaluate a potential commercial loan have remained the same. The five C's of credit are: 

Character:  What is the credit history? Does the borrower have a history of paying their debt?

Capacity:  Does the borrower have the experience to operate the business?

Capital:  Does the borrower have the financial capital necessary for successful operations?

Conditions:  Does the business currently face favorable or unfavorable conditions in the operating environment?

Collateral:  Does the borrower have assets available to secure the loan? 

These five factors are the basis for underwriting all loans.  Cash flow is still the predominant benchmark for underwriting (1.25 to 1.0 generally is the minimal accepted debt service coverage on an SBA basis, 1.35 to 1.0 is usually the minimum for conventional loans ). While interest rates have fallen dramatically in the past few years, the end rate to the C-store borrower has not fallen as dramatically, as spreads have risen.  Regardless if the indexes used for underwriting is the prime rate, the treasuries or Bond rates, attractive rates are available.  This is a good time for well-capitalized operators.  Capital for acquisitions and re-financing is readily available for prudent deals.  The number of qualified competitors for transactions has declined significantly.  A borrower who has demonstrated a long successful track record is much more likely to get a loan approved than someone relatively new to the industry. 

But what type of financing is right for YOU?  Many times a local bank will provide the best terms for a borrower because they may already have a deposit relationship or merchant account with the borrower, so they can offer a more attractive rate.  However, most of the smaller banks do not like to lend to this asset class, plus the lack of understanding of the industry in general tend to make this not an option.  This leaves the borrower a few options; SBA or government backed financing, conventional financing, financing through a MAC program, specialty finance or self funding from cash flow, all offering distinct advantages and disadvantages.  Look at the table below:      

	Local Bank	SBA	Short Term/Bridge	Stated Income	MAC program	Specialty Finance	Self-Funding
Strengths	Loan officer knows the area	Longer amortization	Lower cost of capital Higher loan amounts	Good when minimal financials are available	Understanding of the industry	Longer term/ amortization	Minimizes leverage
	Lower initial interest rate	Will do small transactions	Faster underwriting and faster closing	More liberal underwriting guidelines	Lower initial interest rate	Fixed interest rates	No covenants
	Will do small transactions	Focus on loans under $2 million	No "hidden" fees" Simple approval process	Faster underwriting and faster closing	Larger transactions	Minimal covenants	No interest-rate risk
	Focus on loans under $2 million	More favorable DSC guideline	Interest only structure for lower payments	Interest only structure for lower payments	Subsidized by oil companies	Faster closing	No loan due diligence
	Business enhancements	90% financing available	Flexible terms and conditions	No chopping appraisals		No personal guarantees	Proceed at own speed
		Assumable loan	Minimal Covenants Simple approval process	Minimal Covenants Simple approval process		Innovative structures
Weaknesses	Minimal understanding of industry	Higher fees	Generally higher interest rate	Generally higher interest rate	"In-the-box" loan underwriting	Higher initial interest rate	Limits growth potential
	Interest rate risk	Slow closing process	Shorter  or no amortization periods	Shorter  or no amortization periods	Interest rate risk	Higher closing costs	Inability to acquire sizable chain
	Balloon risk	Personal guarantee			Short term/ amortization	Minimum deal of $250,000	Competitors may buy stores
	Shorter term/ amortization	Adjustable rate			Personal guarantee	Potential over leverage	Lower equity returns
	Personal guarantee	Lack of specialization in industry			Slow closing process	___	Less diversification of stores
	Slow closing process	Inflexible underwriting			Tied to supply contract	___	Limited use of economies of scale
	Limitations on industry concentration	Environmental restrictions			Limitations on borrower concentrations	___	___
	No underwriting guidelines industry specific				Significant environmental due diligence	___	___
Best to use when…	One or two store operator not growing	Initial acquisition	When deal must close quickly Gifts of equity	No or minimal financials	Medium operator seeking modest growth	Multisite operator looking to expand	Cash flow from business can fund slow growth
	Not focusing on acquisition; may sell out soon	Longer term needed to service debt	When higher leverage is needed Larger transactions	Low credit scores Flips	Wants to solidify affiliation with oil company	Focus on economies of scale and return on equity	Don't like debt or leverage
	Need small/medium remodel or upgrades	Working capital and inventory funds needed	Site has environmental issues 100% financing needed	When higher leverage is needed Larger transactions	Want to pay back debt faster	Believe interest rates are going up over next 10-15 years	Control a saturated market: no need for more stores
	Don't mind personal guarantee	Don't mind personal guarantee	Underperforming sites that need upgrading	Site has environmental issues 90% financing needed	Don't mind personal guarantee	Don't like to personally guarantee business loans	Can't put additional capital to efficient use
			Low credit scores Flips	When deal must close quickly Gifts of equity		Refinance floating balloon debt

As you can see from the table above, there are many strengths and weaknesses with each financing option.  PetroMAC can assist you with most of these financing options and provide you with an unbiased opinion about which is the appropriate financing vehicle for you and your company.

 

To pre-qualify for financing, download the following forms and provide the following information and fax to (202)478-1811 or email to fixed@petromac.com:

1. PetroMAC loan request form (You can also submit online here)
2. Personal Financial Statement
3. Completed Tri-Merged Credit Report or Credit Authorization
4. 2008 business financials (Seller/Borrower, if available)
5. 2009 Year-To-Date business financials (Seller/Borrower, if available)
6. Last three years fuel gallonage (Seller/Borrower)

So what are you waiting for? You can conveniently apply online for a loan here or download the prequalification form here. First time inquiries should inquire at info@petromac.com. Let us prove to you that PetroMAC truly “pumps capital into YOUR C-store”

 

(202)478-0230 Voice
(202)478-1811 Fax
http://petromac.com
info@petromac.com