One of our associates sent me the following on SBA loans, and I used it when giving a lecture to agents on gas station financing. SBA is pretty well known in the industry for financing gas stations, but this is well put and understandable. Part of it is from the government office that deals with SBA…but this is “translated” for all to understand.
Throughout the years, SBA loans have become the only choice of financing for gas station dealers and operators. Since the overall economy has worsened within the last number of years, the gas station retail businesses have become even more difficult. With the constant change in fuel prices and our failing economy, foreclosures on service stations and convenience stores are already at record highs.
Back in 2008 or so, the SBA had made financing for gas stations virtually impossible. The SBA had required all gas stations older than 5 years to get a Phase II environmental and all transactions required a seller indemnification, whether or not there had been an environmental concern or otherwise. To make it more difficult, the SBA also demanded a different business valuation from an impartial and independent evaluation company as well as the appraisal.
What do you think SBA was intending to do with all these requirements? Yes, they didn’t want to do gas station financing and I think they were just not sure how to say it.
There should not be any surprise that the SBA adhered to this position. With some non-bank lenders committing fraud cases in past few years, record default and foreclosures, it’s no surprise they made them difficult at the least to get financing. The truth is, the gas station asset class wasn’t considerably worse than other types of properties.
So with no practical secondary market, many gas station lenders have either discontinued doing SBA loans or any other gas station loans or significantly reduce the volume of SBA gas station financing they’d do. Just the larger banks could lend and portfolio their loans which they choose not to do anyways.
Fortunately with the Government stimulus during 2009, a great deal, but not all, of these conditions have changed. First, the SBA will no longer require indemnification agreements on all transactions except those where environmental conditions exist. And secondly, the SBA won’t demand a Phase II environmental except in situations where environmental conditions exist. It is recommended that buyers check the State’s DEP or DEQ to ensure that there isn’t any environmental issues such as spillage or migration reported so the possibility of decline will be reduced considerably. Of course SBA still has issues with some Oil companies deed restriction and agreements with their dealers so what we recommend and what we usually do for our clients is provide the deeds and dealer agreement to the SBA to check first.
Furthermore, the SBA is currently allowing capital providers to base their loans off of LIBOR as well as Prime, giving financial institutions more options to make loans more profitable. Of course with the current capital market, almost all gas station lenders would finance gas station properties through SBA 7A loan program which is adjustable rate based on prime. This way, SBA guarantees 75% of the loan which means less risk for lenders and more profit as well. There are almost no conventional lender that would do SBA 504 loan for gas station with exceptions of few non-bank lenders.
With the streamlining of SBA operations, SBA financing is still a great source of financing gas stations, car washes and other special purpose business properties. As usual, you should have a good financial package together in order to increase your chances.
Another thing to point out is that the waving of the SBA guarantee fee is over and now borrowers would pay the guarantee fee of 2-3% of the loan amount. This is a substantial fee to pay for obtaining financing however, as many know, SBA loans are almost the only source of conventional financing with relatively high leverage amount.
Regardless of what type of financing you choose, make sure that when are getting gas station loans, you work with people that specialize in this specific market and know both the lending and gas station business. And, when I get an inquiry on gas stations, I will send them to my associate, as he does a very good job. So, when thinking of buying or selling.,…please contact me at http://www.gasstationsamerica.com or call 530-941-0444.
Ron Largent's Weblog 