GSB-05: How to Get Financing for Gas Station Business

Podcast: Play in new window | Download | Embed

Subscribe: Email | RSS

In this episode, I discuss [spp-tweet tweet=”how you can get bank financing to buy a gas station business”]. I discuss how to find the right bank that fits your needs. I discuss the difference between typical commercial loan Vs. SBA loans, what is LTV(Loan to Value).

 

I also discuss the items/documents you need both from yourself and from the seller to furnish to your bank as part of the loan package.

Documents you need from the seller:

• Last 2 Years P&L
• Last 3 years tax return of the business
• Current balance sheet
• Any and all inspection and registration document of the UST(Underground Storage Tank)

 

Documents you need from yourself:

• Your last 3 years personal tax return
• Your Resume
• Articles of incorporation
• Personal financial statements
• Copy of commercial appraisal
• Copy of purchase agreement
• Copy of your EIN number
• Copy of driver’s license and social security card for all partners
• A business plan
• The loan application
• A cover letter

The book I recommended in this episode is Getting to Yes by Roger Fisher, William Ury and Bruce Patton

[spp-transcript]

How to get a business loan to buy a Gas Station

In this episode, I will discuss how you can get financing to buy a gas station business. Assuming you already found a business that you like, and you have gone through the due diligence and satisfied with the result.

First come up with a list of banks you want to apply to, it is not a good idea to apply at multiple banks at once, instead come up with a list of say 4 banks then go to them and talk in depth with their business loan department and find out if that bank offers loans to Gas stations, there are banks that do not do gas station or convenience store loans.

In my experience, I have noticed typically smaller local banks are more inclined to offer loans to local gas stations, and similar type of businesses than some of the bigger banks. But that may not be true for every part of the country, so it is best to talk to at least 3-4 banks and try to get the feel if they are really into these sort of business financing or not before you submit your application.

Sometimes your local business brokers or commercial real estate agents can guide you to the right bank as they often deal with similar situations and knows which banks are more favorable to these sort of loans. You can also ask your bank that you deal with every day and ask for their advice.

Now once you narrow down to say 2 banks, go visit them have a meeting with their loan officer and see what their requirements are just remember every bank will have similar requirements but still they can vary widely based on many factors like how much down payment they require, how much collateral they need from you to even if they offer some SBA assisted loans or not. Your goal would be to deal with a bank that offers SBA loan, SBA stands for Small Business Administration.

Most times SBA offers some sort of guarantee(50-80%) on your behalf to the bank, so banks are somewhat more lenient in approving the loan as they are not in the risk for the total amount they are giving you. But the downside to this is the amount of paperwork you have to furnish is monumental in most cases.

SBA’s requirements can be broad and extensive, so be prepared to gather up a lot of paperwork.

Another drawback to SBA loan is it can take up to 6 months to get an approval from them as they run slower than most banks and in their defense they do have a lot of applicants that are submitting application so they have to go through all that, and it is always first come first serve, so be patient.

But if you have larger down payment (say 30% or higher) or have some good collateral to offer then you can opt out on SBA loans and get most any banks to offer you a loan provided you have all your ducks in row like your credit is in excellent shape, your tax returns show good incomes for previous years and so on so forth.

When you talk to any banks they will hand you something call a loan package, most times the package will have a checklist of documents that want you to furnish to them along with a loan application and some other waiver form depending on your bank.

One thing to keep in mind, all banks and commercial lenders do have to follow certain guideline that is set by federal state banking authorities. Also every bank will look and something call LTV (Loan to Value) ratio of the property or business you are looking to buy. LTV is essentially where banks look at the actual value of the business you are looking to buy and how much of that value they can loan you.

But in any case, let’s look at the list of documents you will need to get ready to submit to your bank. Some of these items I will mention here may not be on your bank’s checklist but do gather them anyway as it will make you look more professional and business like.

First the items you will need from the seller for this loan process:

Last 2 years of P&L

Last 3 years Tax return of the business

A balance sheet

Any and all inspection documents of the UST (explain)

 

List of Documents you need

1. you need to get copies of at least last 3 years of tax return, make sure the copies are signed.
2. Your resume (they may not even ask you for it, but remember the person that may approve your loan may never meet you but this way at least he or she gets to see who you are and how qualified you are it always helps)
3. Copy of your Corp. articles, (yes you have to get this done before you even apply for your loan, I will touch on how to file a corporation in next episode)
4. Personal financial statement for all Corp. Officers or members(explain) make sure to sign it, if you are married and file joint tax returns than your wife needs to have one prepared for her as well or you can make a joint personal financial statement for both of you and make sure to both sign that document.
5. Copy of the commercial appraisal
6. Copy of signed purchase agreement and Letter of intent
7. Copy of your EIN (Employer’s Identification Number) issued by the IRS
8. Copy of all member/partner’s Driver’s licenses and social security cards
9. A well thought out and expertly written Business Plan (not a store bought one or copy-pasted one, one that is written for that specific business, get help if you need to but this has to be a well thought out plan, do it like your life depends on it trust me on this.)
10. Last but the least the loan application all filled out, use a computer and printer if possible, if not write very clearly, so it is easy to read.
11. A cover letter addressed to the loan Dept. Where you describe what is in the package and thanking them for reviewing your loan app and lastly tell them where they can find you if they need further help or other documents from you, it just makes you look more professional

Now remember to organize these papers with nice tabs and in a binding folder where anyone can open the folder and looking at the tab they can go directly to that specific section

Just remember based on the age of the facility you are looking to buy banks may also ask for some test done on the health status of your UST, often times known as Phase I test and Phase II test, what these test are designed to do is find out if they are any leaks corrosion in the tanks, how solid they are and if any of them leaked previously. In the event they want any of these tests done, you have to hire a local professional fuel equipment servicing company to do that. If I recall a Phase I test usually cost around 1k and Phase II usually cost around 3-5 K depending on where you are.

If you are applying for an SBA specific business loan then SBA may also give you a loan package with some more documents and forms to fill out but they will mostly ask for the same as I just mentioned but yes they will have you fill out many more forms, and don;t worry you do not have to go visit SBA office separately they work through your local banks so the loan office you deal with he will furnish you all that.

Now let’s talk about business plan in little more in depth

a typical business plan starts with something call executive summary where you introduce yourself (and your partners if you have any) summarize what you are planning to do and how do you think you will be successful in a short paragraph first, so the reader know can understand your goal before even reading the whole plan.

Next you will talk about the company you formed that you want to buy this business under, explain who is in this company and how many shares they each have and what their roles are in the company and who will be the person in charge

Next you will mention about the management team, who will be in this team and what their roles are

Next you will talk about products and services your new business will offer or sell, remember the person reading your business plan may not be a pro when it comes to a gas station business so you have to really explain what and how you will be conducting your gas station business

Next you need to draw a picture with words and explain who your competitors are and how they may affect or benefit you

Now you need to focus on your target market and explain your customer base again keep in mind the person reading it may not know much about your business, so you need to explain who your target market is, it is a good idea to gather up some Census data and add here like what is the population of your city, data about demographics and income level and such

Now comes the juicy part, marketing:

You need to explain in depth how you plan to market your store.

First explain your competitive positioning in the market.

You have to be specific and outline at least 2-3 good solid marketing strategies, for example, you can say you will do 2000 direct mail out to your local neighbors and offer them free hot dog when they buy a large soda, or that you will have put up a banner advertising 99 cents 2 liter soda and that you will sponsor the local kids basketball team, and you will offer the local church free drinks on Sunday service once a month. I am sure you get the idea. Use bullet points to emphasize in each marketing strategy.

In this segment you can briefly talk about pricing, you can even break it down to categories you carry and their profit margin and how this business needs adjustment of that margin and resulting you reducing some of the prices and how you will offer lower prices compare to your competitor and how that can increase your business while still maintaining good margin

Financial plan (very important part that bank looks at)

In this segment of the business plan, you need to create some sales forecast. You do not need to show how much profit you are making but how much sales you will grow over next 3 years. If you need to see an example go visit my blog and you will find a sample business plan under “Resources”.

Next you can talk about your staffing plan, how many people will work in the business and what your payroll expenses will be in this section you can even do a projected labor budget for next 3 years as you did for sales, again you can look at the example on my blog, or you can even download it.

lastly you need to add 3 years of projected P&L and make sure it is realistic , best is to base your P&L on the P&L you get from your sellers, this way they will look more realistic but make sure it reflects the improvement you suggested you would do to the business and the growth that you talked about.