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. Gas station 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 community
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 do.
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 breath.
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 loans.
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.