Financing Gas Stations

by : jeff rauth

Financing gas stations are complicated due to the single use nature of the property, environmental issues and subsequently the limited pool of banks and lenders that want to fund on this property type. Some lenders will simply not look at gas stations while others will be so conservative that it would save everyone time and effort if they just didn't bother quoting on gas stations to begin with.

The most viable options for gas station financing include SBA loans and niche portfolio lenders that specialize in this building type.

The primary benefits of the SBA programs include low, long term fixed rates and the highest level of leverage in the industry. Borrower can expect to only put down 15% compared to conventional requirements at 40% down. In addition, the SBA, and especially the SBA 7a program has very flexible underwriting standards. For example, debt coverage ratios can be as low as 1.1 compared to 1.4 that required by most conventional sources.

Most people do not realize that they can refinance with an SBA programs. With the 504 that is true you cannot refinance with it. With the 7a you can. And it can be one of the best programs in the industry. Borrowers can consolidate business debt, pull cash out for renovations or expansion, etc.

One of the main criticisms of the 7a program is that it comes with a floating rate. However there are a few lenders do structure this as a 5 year fixed program that is amortized over 25 years.

Niche portfolio lenders that specialize in gas stations often have as many benefits as the SBA programs but in different ways. For example we work with a gas station lender out of Maryland that will consider not only the value of the real estate as collateral but also business value and equipment. They'll go to 80% of the combined value. This can be really relevant if, for example, the value of your real estate has dropped, or if you currently have an SBA loan that is at max leverage.

In general due to the complexity of gas station financing it's important to work with people that have experience in this industry.