Gas Station Loans – Contracts, Agreements, Covenants and Limitations – Oh My

Gas station loans have become more prevalent In the past few years in that many of the oil companies have been selling off their company wielded gas stations that were either company operated or operated by dealers who were leasing the sites from the oil companies.  Sometimes these operators were given the right of very first refusal (ROFR) to purchase the sites and some of the sites were sold by bid.  Most people do not realize when they purchase a gas station or convenience store from an oil company that a bank in many cases will want nothing to do with the financing.  Most banks view financing gas stations as a necessary evil, but few of them truly like to do them.  They do not have a hard time accepting their depository accounts tho’!  The main reason banks do not like to finance gas stations and convenience stores sold by an oil company is one thing: contracts!  Oil companies want to preserve their brand and their pic.  Banks could care less.

Banks Truly dislike financing gas station and convenience stores sold by oil companies for a duo of reasons:

1) Brand Covenants

Two) Deed Limitations

Three) Indemnification Agreements

Four) Right Of Very first Refusal To Repurchase

Many times you have a very qualified buyer that is purchasing the site.  Many times they have operated the site for years, have excellent credit, have excellent cash flow at the site and have a good private financial statement.  They are excellent borrowers in every sense of the world and the site is excellent collateral with excellent cash flow.  


The bank takes one look at the contracts, agreements and the endless addendums from the oil company and want NOTHING to do with the deal.  Many times, the banks take a look at the contract towards the end of the underwriting process.  They tend to concentrate on the deal at mitt, the cash flow of the business, the collateral, environmental status, credit of the borrower and individual liquidity of the borrower without looking at the contracts and agreements.  Banks then tend to run like they’ve been set on fire. 

It’s not that banks don’t already have enough reasons to decline doing a gas station deal:

  • Age of property
  • Average Monthly Gallonage
  • TYPE of underground storage tanks
  • AGE of underground storage tanks
  • Only suggesting fuel and little or no inwards sales
  • Only suggesting fuel and repairs
  • Unbranded or independent station
  • No Card Readers at facility
  • Land Leases
  • Sites that have been remediated and await a No Further Activity letter.
  • Sites that have been remediated and have an indemnification agreement from a MAJOR OIL COMPANY
  • No Financials
  • Lite Financials
  • Service stations with service bays
  • Yam-sized “pumper” stations with hefty volumes and no inwards sales

It is a rather lengthy list of why banks don’t care for convenience and gas (C & G) deals.To add insult to injury, we have these onerous contracts from the oil companies.  The largest favor you can to do attempt and financing is two things:

1) Have the contracts and agreements introduced the lender at the beginning and have their legal department review them.  It’s better to kill it quick than find out months later that they can not do the deal because of that one reason

Two) Leave behind SBA financing.  I hear on occasion that someone had gotten SBA financing after an oil company sold a site, but I’ve yet to document it.  There are too many issues in almost all oil company agreements that would make SBA financing prohibitive.

Oil companies are not the only ones that can possibly have a difficult contract to accept for financing.  Frequently, petroleum suppliers (jobbers) also have the issue.  Just make sure you have copies of all agreements at the onset and have the documentation reviewed.  You will save yourself a lot of heartburn.

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