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So your gas station / convenience store loan doesn't seem like it's going to close before
Y3K? They're not as complicated as you think.
The speed of getting gas station loans approved and closed is directly commensurate to the
weakest link in the transaction. This can involved a commercial realtor/ business broker,
seller, seller's accountant, mortgage broker, borrower, borrower's accountant, seller or
borrower's attorney, etc. You get the picture. If any of these entities respond slowly, the
whole deal responds slowly. It generally is best to keep one person at point and not have
multiple entities involved with the financing arm as to prevent duplication of effort.
The top ten reasons why your gas station loans do not close:
1. Your package is disorganized - Many packages we see are disasters. Many people expect us
to put lipstick on their pig. Important in the submission is an understandable executive
summary and a usage of proceeds. Things that do not make sense get put on the bottom of
the pile. The PetroMAC loan questionnaire asks most of the pertinent questions regarding
the transaction. WE DO NOT LIKE NOR WANT A RESIDENTIAL 1003 FORM. Some information isn't
totally important at the beginning (i.e. name of attorney, accountant, insurance agent)
but if the loan gets to the next step, that will be information you will have to provide.
Why not provide it now? An incomplete loan package will stop it from going to underwriting.
Inquiring about status on an incomplete package will be futile as the underwriter WILL NOT
review the file until all requested documents are obtained and complete.
2. Your financials are outdated -- This really would be the main reason most loans do not
close. Most loans, unless they are funded by private parties, will require that you
have financials that are not older than ninety days at the time of closing. With a gas station,
frequently sellers will inflate the financials on a site the year they plan on selling the
location by dropping the price of fuel and hopefully increasing gallonage. Don't think
that that that sudden spike in sales will make it more likely to be approved.
3. Inability to verify source or amount of capital injection - It's a fact of life that
many borrowers borrow money from friends, relatives and "people that love them." There
actually isn't anything wrong with this. The problem arises when an underwriter does not
have a grasp of where the equity injection is coming from. Underwrites do not like to
approve loans where borrowers do not have "skin" in the deal. If part of your equity
is coming from borrowed sources (including home equity loans) please tell us up front.
There will be less surprises on the loan.
4. Inability to come up with capital injection -- This is an extension from the prior reason.
If part of your injection is coming from another source other than yourself, you run the risk
of the loan not happening. This is why we ask for documentation of funds at the beginning.
If you're looking to have someone deposit money into an account a week before closing,
the loan most likely will not happen unless it is private funding. Too many deals do not
happen because borrowers never obtain their capital.
5. Insufficient or non existent explanation of sales projections and expenses -- There
are not many bigger things to show that a borrower does not know what they are doing
or they are not qualified than this one. When we look at pro forma projections that show
a clear indication that the person can not possibly be familiar with standard industry
expenses and costs, it makes one want to decline a loan immediately. You've heard it before,
failing to plan is planning to fail. You can take this one step further. Failing to plan
a legitimate plan is also planning to fail. We have found that the largest reason for
default in this industry is that people have insufficient direct industry experience. Research
the market. It's a pennies game. Pennies will make you and pennies will break you.
6. Changes in personal credit report before the loan closes -- If you initially present
a credit application and your credit score is a 740 and when it comes time to close,
if your credit score is a 590, do not expect to have the same loan terms as when your score
was a 740. By the way, we DO see this happen. Many times people borrow money to get into
a business (whether home equity loans, credit card advances, etc.) all of which have the
potential to bring your credit score down. Don't go making a major purchase while trying
to get gas station financing.
7. Changes in financial statements before the loan closes - This would also be an extension
of the inability to come up with the equity infusion, whether it is a change in your own
personal financial statement or the financials of the gas station or convenience store in
question.
8. Insufficient values on real property and/or FF&E -- This happens frequently. It is why
it is important that you know what type of deal yours is to begin with. Is it a cash
flow deal or is it a collateral deal. If you have a location that cash flows really well
and you send it to a lender that is primarily a collateral lender and they do not give credit
for goodwill in an appraisal, you'll find yourself having to come up with more equity
into the deal, seller equity, seller held second or fuel supplier equity. Most of the
time lenders will not lend against the good will or business value of the gas station
or convenience store, so be prepared for this. Most gas stations and convenience stores will
have at least 10-15% of the total value in good will. If it has little good will, this
means the site is underperforming.
9. Environmental Issues -- Most environmental issues are NOT issues if you find out about
it at the beginning and not months into the deal. If this is a purchase, ask the seller
if there has EVER been any environmental issues with the property, whether that be leakage,
spillage or environmental problems that have migrated to the site in question. Know if
there is an open file on the site. Know if there has ever been remediation to the site,
and if so, has there been a No Further Action letter (NFA) issued. Is there also an Indemnification
Agreement from the owner at the time of the environmental issue. Many files stay open
for years without closure. Do yourself a favor and look on the respective State's DEP or
DEQ website and check out for yourself.
10. Uncooperative borrowers/brokers -- We know more about this business than the people
who come to us for financing, which is why they come to us for financing. We do not know
the hotel business. We do not know the restaurant business. We do not know the multifamily business.
If you want your loan to close, let's just make sure all parties cooperate to make this
as smooth as possible.
One thing to point out. If underwriters do not have direct access to the borrower and
have to deal through a broker, it makes it more difficult because it a) takes up more
time and b) makes it more likely that miscommunication takes place.
Realistic expectations of financing are always important. We are not miracle workers but
we do know how to finance gas stations, convenience stores, truck stops, auto lubes, car washes
and auto repair facilities. Help us help you by being professional and organized in your
deal.