The past few years have been difficult for financing gas stations and convenience stores. Defaults and foreclosures have been significantly higher than in past years. If one were to look at common denominators of defaults and foreclosures in recent years, one would find that more are attributed to lack of industry experience and lack of sufficient equity into the transactions and not due to personal credit.
Bad credit is a relative term. One can have bad credit due to health circumstances that have left unpaid bills due to insurance coverage that was insufficient. Bad credit can result from marital changes. Bad credit can result from just simply not being committed to taking care of obligations. There are many reasons to have “challenged” credit. Obviously, not all bad credit is created equal.
If you are looking to purchase a gas station or convenience store and have a significant amount of personal debt AND have bad credit, your chances for financing are not great. If you are looking to buy a gas station or convenience store and you have minimal or no personal debt other than perhaps a mortgage on your home and perhaps a car loan and you still have challenged credit, your chances are significantly greater. Your chances are probably greater with SBA financing than with conventional financing. Your chances in general are also greater with collateral lenders than cash flow lenders.
Another option is to take on a partner that has good credit. If you structure the company to where you own less than 20% of the company, your personal credit usually will not be an issue because they will be looking at the credit of the majority stock holders. If you do bring on a partner with good credit, your chances improve if they have direct industry experience.
Frequently seller financing is used in these situations. Not all sellers are going to be receptive to this option. This would normally be done by sellers that are motivated to sell, frequently below market value. Business owners that might be having difficulties with business partners or business owners that might be experiencing significant health problems or marital problems are prime candidates. Sometimes the owners of these gas stations and convenience stores have been in the business for so long, they’re simply ready to “get out” as the industry has changed significantly in the past few years.
If you have owned other businesses and had good credit, if you can document good payment history with your vendors and timely payments on your notes, this will also increase your chances.
They key to finding financing is to deal with entities that have dealt with all types of credit situations and can offer many financing options.
Harold Jaynes is with PetroMAC, the premier source of financing gas stations, convenience stores and truck stops in the country. PetroMAC has closed hundreds of millions of dollars in this asset class. Come deal with former oil company marketing managers, jobbers and gas station owners to find out your best options. Visit our web site to pre-qualify for financing and talk about your prospective deal.