Petrol Station Loan
With more than 17.5 million motor vehicles in Australia right now, purchasing a petrol station is a popular commercial investment option among smaller investors.
The reason is that service stations tend to be secure, quality properties and generate great market yield thanks to its retail component.
There are very few businesses with a captive market but it doesn’t necessarily mean getting a commercial loan is straightforward.
In fact, banks see service stations as a specialised commercial property so, depending on the nature of the petrol station, the amount that you can borrow will vary between lenders.
How much can I borrow?
- Borrow up to 50-60% of the property value. A guarantor can help you borrow up to 100% though.
- Loans over $5,000,000 are assessed on a case by case basis.
- The bank will generally require a business plan and profit forecasting for the service station.
- Low doc options are not available.
- Interest rate discounts vary depending on the lender and your financial situation.
Which bank is best for your situation? Speak to our mortgage brokers by calling 1300 889 743 or fill in our free assessment form to find out how much you can borrow.
How can we help?
Because of the relationships that we have within the commercial departments of major lenders and banks, we know which of them will allow you to borrow up to the maximum Loan to Value Ratio (LVR) for your commercial purchase.
On top of that, we know which lenders can offer you a competitive price for your loan including a great interest rate. By properly assessing what you want out of the commercial loan, we can choose the right lender for you so it’s not about shopping you around.
Call us on 1300 889 743 or fill in our free assessment form to get an indicative funding proposal for your property.
What do the banks assess?
Who’s your supplier?
Most people who enter into purchasing a petrol station enter into a franchise model with a major, well-established company like Woolworths, Coles, Caltex, Shell or 7-Eleven.
The reason is that all tanks, pumps and line work are the responsibility of the company that owns them, as well as site “remediation” to make it legally safe for redevelopment when the lease expires. It means that you don’t bear the cost, which means less risk for the bank.
You should check the franchise terms before signing on to a large supplier, in particular, the lease terms.
It doesn’t mean that you can’t still buy an independent service station but it just means that you don’t have that flagship brand to support you in marketing, setting your shop up, shipping fuel and providing maintenance. Most of this work is taken care of in the franchise model although you’d still need to get approval for a loan to fund the business (leasehold).
The positives of going independent is that you don’t have to answer to a large conglomerate – you create the business you want and won’t have to share the profit you make.
Do you have experience?
It’s very difficult to get funding for a petrol station unless you already own one and have extensive experience.
Most lenders tend to take a resume type approach when considering applications, that is, they will be asking whether you have a strong track record in running a business in the same industry. In that way, the bank can be confident that you can operate a profitable business and won’t default on your loan.
A lot of people looking to buy a service station are already in the game and use an existing commercial property as security to qualify for finance for a new station.
So if this is your first service station – no matter whether it’s as an independent service station or as part of a franchise model – the banks will be scrutinising every aspect of your application and will undertake a yearly review.
Location and traffic
The lenders need to see that the service station has a good amount of traffic such as busy thoroughfares and highways.
Owning a petrol station on a quiet road is like owning a billboard in the desert: it could have all the bells and whistles at a great price but with no customers, it’s really only an expensive money pit.
The service station industry is very competitive because profits are low and the operating costs are high. The other problem is competition.
If the station is situated in a prime location, chances are there will be other petrol stations located in the same area.
Direct competition can work against you not only from a business perspective but also in getting finance approved. The banks want to see evidence that you can stay profitable.
This is especially true if your competitors are major operators like BP, which are swallowing up the independent market.
How to present a case to the banks
Commercial loan applications are judged by a lenders’ in-house credit assessing team based on things like the borrower’s character, asset position and cashflow.
A lender will assess every case on its merits so our job as a broker is to present a good case and mitigate any weaknesses with the strengths of your application.
The commercial lending departments of banks will usually undertake what is known as a SWOT analysis, an acronym for Strengths, Weakness, Opportunities and Threats.
Although it works differently from lender to lender, a SWOT analysis for a service station may look something like this:
Strengths: For example, you’re an experienced operator, you have a business plan and you’re going to be situated on a main road of a busy suburb that has massive traffic and no direct competition in the area.
Weaknesses: This refers to the weak aspects of you as a borrower such as having little to no experience in the industry and wanting to buy an independent service station. Are you going to be able to manage the business and the marketing with no experience?
Opportunities: For example, a large supermarket or mall is being constructed up the road from the service station which will increase traffic.
Threats: This refers to external factors that are largely out of your control. For example, there is direct competition, there is scope for another service station to open up near your location in the near future or an infrastructure project, such as a new motorway or tunnel, that may cut off traffic to your petrol station.
We’re experts at highlighting the strengths of your application and negotiating a better interest rate. Call us on 1300 889 743 or fill in our free assessment form to find out how we can help.
Are you purchasing a leasehold petrol station?
Despite the fact that service stations tend to have high costs of running and return low profit, there is still opportunity if you know where to look and have the support and expertise of a commercial business broker.
Here’s a tip: You can own a petrol station as either a leasehold or as a freehold going concern.
Leasehold refers to simply owning the business of the service station. That means you don’t own the premises or land that you’re operating on and will be paying rent to a landlord.
With leasehold, banks will lend to you against the profitability of that business.
Valuations of leasehold commercial property tend to be based on a formula which takes into account the projected yearly profit and the return on investment. Every bank uses a different formula.
Are you purchasing a freehold going concern station?
In a freehold arrangement, you own both the business and the land which means banks may be willing to lend you more in comparison to the value of the commercial property, or, at a higher LVR.
The reason is that the land itself is a real estate asset and can be taken as security, along with the profitability of the business, when the lender values the commercial property.
Essentially, with the freehold going concern there are two valuations: one for the leasehold or business and one for the security.
What to look for when buying
An older petrol station may carry contamination risks which can cost you thousands to bring up to code before you even turn a profit.
Businesses with ready-installed shatter-proof glass windows, security systems and security cameras will be a good investment and provide peace of mind for employees and customers.
Electronic door systems for 24-hour gas stations are also worth considering.
Establishing a new service station: You may require a development permit from your local council. New buildings may also require rezoning and/or development applications.
Renovations: Again, renovations involving the structure of the building of plumbing require a council approved development permit.
Do you have a licence to sell fuel?
Environmental factors are one of the biggest traps for novice service station investors.
Depending on the state in which you’re operating, you may need environmental authority from your local council. Licensing fees will vary but it is a requirement in undertaking any environmentally relevant activity.
Organising a site assessment report with your state’s Environment Protection Authority is another significant cost that is often overlooked by first time station owners.
Storage of hazardous substances
Flammable and combustible liquids must be properly stored as per your state’s Workplace Health and Safety guidelines.
With service stations, you may need to develop an off-site plan and, although there are no fees, it may take 2 months for your relevant state’s Department of Community Safety to process your application.
Petrol tank contamination
Many of the fixtures and items for the operation of a service station are found underground. This includes things like tanks, fuel lines and pumps.
Fuel itself is kept in what are known as ‘Underground Petroleum Storage Systems’ (UPSS) and the risk of contamination is a major factor to consider when deciding on which commercial property you wish to invest in.
How do you know if the station you want to buy is leaking fuel?
An active petrol station will be recorded in the Contaminated Land and Environmental Management Registers (CLR/EMR) as per the Environmental Protection Act 1994.
Thoroughly check the record to find out whether contamination has been a problem in the past as well as the Contract of Sale to ensure that a satisfactory tank and line test has been undertaken.
A parcel of land not listed on the CLR/EMR doesn’t necessarily mean it’s free of contamination so ensure you undertake a complete test of the soil.
If a soil test is undertaken prior to settlement and it’s found that the soil is contaminated, most petrol station leases require the tenant to remove the contamination at the end of of the lease back to the state it was in when the lease began.
Without any such test, you could be liable to remove any contamination at your expense.
The lease should clearly identify whether responsibility for installation, repair, maintenance and replacement of these items belongs to the landlord or the tenant.
In most cases, the landlord is responsible to install and retain ownership of the infrastructure, while the tenant is obliged to carry out repairs and maintenance throughout the term. Again, you should confirm before signing any contracts.
Apply for a petrol station loan
Speak with an expert in petrol station loans. We understand commercial finance and which lenders can approve your loan and get you a great deal.
Call 1300 889 743 or complete our free assessment form today.