SBA Loans for Gas Stations - Fueling Entrepreneurship

Gas stations aren’t cheap to build, buy, or maintain. While they can be profitable businesses, gas station owners will likely need to seek out financing at some point in their ownership journey. SBA loans for gas stations can provide this much-needed funding, often with favorable terms and lengthy borrowing periods. 

Key Points:

• SBA loans offer large amounts of financing (up to $5.5 million) and tend to have lower interest rates. 
• SBA loans can be difficult to qualify for without a good credit score, time in business, and a history of on-time payments. 
• SBA gas station financing often comes in the form of the SBA 7(a) or 504 loan programs. 

Understanding SBA Loans for a Gas Station

The Small Business Administration (SBA) offers loans (through designated lenders) designed with business owners in mind. Some SBA loans come with large amounts of funding, and most offer low interest rates and terms of over 10 years. 

Can SBA Loans be Used to Purchase a Gas Station?

One of the key advantages of SBA loans is their flexibility in terms of eligible uses. Gas station acquisitions or renovations fall within the scope of those eligible expenses. When using an SBA loan to purchase a gas station, the loan proceeds can cover not only the purchase costs of the land or buildings but also related expenses like equipment and inventory.

SBA loans typically offer higher loan amounts and longer repayment terms compared to conventional loans, making them specifically attractive for current or future gas station owners dealing with high sticker prices on their purchases.

Who’s Eligible for SBA Loans?

SBA loans are designed specifically to support small businesses across various industries. To qualify, you typically need to meet the SBA's definition of a small business, which varies based on the industry. Gas stations should have no issue falling within the SBA's definition.

Other key factors that determine your eligibility include:

• Demonstrating the ability to repay the loan.
• Having a sound business plan.
• Having invested your own personal savings into the business.
• Your personal credit history.
• Your business experience.
• What collateral you have available.

While the SBA sets its own general eligibility guidelines, many individual lenders have additional criteria, so check these requirements when comparing lenders. 

What Types of SBA Loans Are Available?

Each SBA loan program has its own unique features and benefits, catering to different financing needs for different types of businesses. Understanding these options can help you choose the most suitable SBA loan for your gas station business:

• SBA 7(a) Loan: The most common and versatile SBA loan program, the SBA 7(a) loan provides funding for a wide range of business purposes, including gas station acquisitions, equipment purchases, and expansion. You can qualify for up to $5 million in funding and choose from long loan terms. 
• SBA 504 Loan: Designed for long-term financing needs, such as purchasing or renovating commercial real estate, the 504 loan involves collaboration between an SBA-approved Certified Development Company (CDC) and a lender, allowing you to access fixed-rate, low-interest financing with a smaller down payment.
• SBA Microloan Program: For gas station owners with smaller financing needs, this program provides loans of up to $50,000. It can be used for working capital, inventory purchases, equipment purchases, or improvements. SBA microloans are offered through nonprofit community-based organizations and may require additional collateral.
• SBA Express Loan: These loans are one of the only SBA loans that promises a fast approval process (with other loans taking months to get approved). SBA Express loans provide businesses with up to $500,000 in financing and the loans can be used for various purposes, such as equipment purchases or business expansion.
• SBA Disaster Loans: Available during times of declared disasters, these loans provide financial assistance to businesses impacted by natural disasters.

Can You Get an SBA Loan to Build a Gas Station?

SBA loans can be used for construction purposes, including building or expanding an already-built gas station. The specific SBA loan program that would likely be most beneficial in this case is the SBA 504 Loan.

The SBA 504 Loan program is designed for long-term financing needs, such as commercial real estate projects. If you plan to build a gas station from the ground up, the SBA 504 Loan can provide funding for land acquisition, construction costs, and all of the other associated expenses.

Be warned, though, The SBA loan approval process for construction projects is a lengthy, detailed process that typically involves providing:

• Detailed plans
• Cost estimates
• Feasibility studies to demonstrate the viability of the project
• Personal and former business financials 

Are SBA Loans Available to Buy a Gas Station Franchise?

Franchises provide a unique way to enter into the gas station industry. Instead of tackling everything on your own, you work with a franchiser who can give you the support you need to get your business up and running. The (SBA) recognizes the value of these arrangements and offers loan programs specifically tailored to support franchise owners.

If you’re interested in buying a gas station franchise, you can utilize certain SBA loans such as the SBA 7(a) Loan or the SBA 504 Loan. These loan programs provide funding for various franchise-related expenses, including the franchise fee, equipment purchases, and improvements to purchased or leased properties.

When applying for an SBA loan to buy a gas station franchise, check to see if the franchise is listed on the SBA's Franchise Directory. Being listed on the directory streamlines the loan approval process because the SBA has already reviewed and approved the franchise's business model.

How Can SBA Gas Station Loans Be Used? 

SBA gas station loans aren’t the same as say personal loans, where the fund can be used for practically any purpose. Certain loans correspond to different uses, but generally, you’ll find that you can use SBA loans for:

• Purchase or acquisition: SBA loans can be used to finance the purchase or acquisition of an existing gas station business, including the purchase of the property, equipment, and inventory.
• Construction or renovation: SBA loans can fund construction or renovation projects for gas stations, including building new facilities, expanding existing structures, or making improvements to help grow the business.
• Working capital: SBA loans can provide working capital to cover day-to-day expenses, such as payroll, inventory, utilities, and marketing efforts.
• Equipment financing: SBA loans can be utilized to finance the purchase or lease of equipment that’s essential for running your gas station. This can include fuel pumps, point-of-sale systems, refrigeration units, etc.
• Refinancing existing debt: Gas station owners can use SBA loans to refinance existing debt they have, potentially securing better terms and reducing the interest rates.

Pros and Cons of SBA Loans for Gas Stations

SBA loans offer many desirable features small business owners look for in their financing, but there are a few drawbacks you should consider as well. 

Pros of SBA Loans for Gas Stations

• Favorable terms: SBA loans offer longer repayment periods and lower down payment requirements than many other forms of business financing.
• Lower interest rates: SBA loans tend to come with lower interest rates compared to conventional loans, reducing the overall cost of borrowing.
• Flexible use of funds: SBA loans provide flexibility in how funds can be used, allowing gas station owners to address various needs such as acquisition, construction, equipment financing, or business expansion.
• Higher loan amounts: SBA loans come with amounts into the millions — much higher than other conventional financing options.
• Support for startups and existing businesses: SBA loans cater to both startup gas station businesses and existing operations looking to expand. They offer support for entrepreneurs entering the industry and capital for expansion or loan refinancing for established gas station owners.

Cons of SBA Loans for Gas Stations

• Strict eligibility criteria: SBA loans have specific eligibility requirements that must be met, which may include demonstrating the ability to repay the loan, providing a solid business plan, and meeting individual lender criteria in addition to SBA guidelines.
• Lengthy approval process: For many of the SBA’s loans, the approval process is anything but fast. This isn’t an emergency funding option (unless you’ve been part of a declared natural disaster), so if you need funding quickly you may have to look elsewhere.
• Collateral and personal guarantee: SBA loans often require collateral and personal guarantee, which may put your personal assets at risk if you ever defaulted on your loan.

Qualifications for SBA Loans for Gas Stations

Since SBA loans are often for such large amounts, qualifying for one isn’t always easy. There’s a long list of qualifications the SBA sets out, plus individual lenders often also have their own requirements. 

Credit Score Requirements for SBA Gas Station Loans

Having a solid credit score is an important factor when applying for most loans, but especially so when it comes to SBA loans. While specific credit score requirements may vary depending on the lender and loan type you choose, a good credit score enhances your chances of loan approval and favorable terms. Here are some key points to consider regarding credit score requirements:

• Most lenders prefer a minimum credit score of 640 or higher for SBA loans.
• Lenders will review your credit history to assess your payment behavior, outstanding debts, and any derogatory marks or bankruptcies you’ve had. 
• In addition to credit scores, lenders evaluate your overall creditworthiness, considering factors such as your debt-to-income ratio, financial stability, and any existing credit obligations.
• If your credit score doesn't meet the minimum requirements, having a creditworthy co-borrower with a stronger credit profile can up your chances of approval.

Documents Needed for SBA Gas Station Loans

That long list of requirements we talked about above comes mostly in the form of documentation you’ll need to submit to prove you’re a worthy borrower:

• A valid form of identification, such as a driver's license or passport, to verify your identity.
• Business financial statements (if you’re expanding rather than building) including your profit and loss statements, balance sheets, and cash flow statements. 
• Recent personal and business tax returns, typically for the past three years.
• A well-prepared business plan outlining your gas station's operations, market analysis, growth projections, and repayment strategies. 
• Documents that establish your ownership of the gas station, such as certificates of ownership, lease agreements, franchise agreements (if applicable), and any relevant licenses or permits.
• Credit reports for both yourself and your business to evaluate your creditworthiness and payment history.
• Collateral documentation, If collateral is required for the loan.

How to Apply for an SBA Gas Station Loan

Applying for an SBA gas station loan isn’t a walk in the park. You’ll want to work with folks who know what they’re doing – lawyers and industry professionals –  and have a carefully thought-out plan in place before ever applying for the loans. Here’s how to navigate the application process successfully:

• Research your options: Familiarize yourself with the specific loan programs (see above and decide which is right for you. From there, gather the necessary documentation, including financial statements, tax returns, business plans, ownership and legal documents, and personal identification.
• Identify an SBA-approved lender: After selecting the right loan choice, you need to find a reputable lender experienced in SBA loans. Use the SBA’s tool to do so.
• Prepare a comprehensive loan application package: Work closely with your lender of choice to complete the loan application, ensuring that all required forms and documents are accurate, up to date, and properly filled out.
• Submit the loan application: Submit your completed loan application package to your lender. Make sure to keep copies of all submitted documents for your records.
• Application review and underwriting by the lender: After submitting the loan application, the lender will review your documents, assess your creditworthiness, and go through the process of underwriting the loan. They may request any additional information or clarification during this stage.
• Receive your loan decision and close on the loan (if approved): Once the underwriting process is complete, the lender will decide on your loan application. If approved, you’ll move on to the closing phase, where you'll review and sign the loan documents.
• (Finally) receive your funds!: After the loan closing, funds will be disbursed according to the terms of the loan. You’ll be responsible for managing the loan payments and complying with any requirements outlined by the lender.

SBA Loans vs. Traditional Bank Loans: Which is Better for Gas Station Financing?

SBA loans and traditional bank loans are two of the more common choices of funding for entrepreneurs looking to build or expand their gas stations. Choosing between the two depends on your specific needs, timeline, financial profile, and preferences. To give you a sense of the major differences, here’s a table comparing the two: