Business Loan for Petrol Station

Jon Maloney talks through the process of applying for a business loan if you are looking to buy a petrol station.

What type of business loan would a petrol station use?

You would first of all probably use a secured loan to purchase the petrol station itself. The loan would be secured on the freehold or leasehold of the petrol station premises – the forecourt and the building itself, etc.

Once you’re running a petrol station, you have other options. You could use asset finance or equipment leasing to pay for a shop fit, to upgrade the petrol pumps or refurbish the building.

Then there are unsecured loans which are typically used for the same things as equipment leasing. Again, it might be petrol pumps or a shop fit. A lot of petrol stations have car washes attached to them, and we do get people asking to finance those.

Then there are other forms of finance for working capital, cash flow and growth. We do fund a few petrol station purchases – where somebody has an existing petrol station and wants to take over another one. That could be done on an unsecured loan, depending on the value there. Typically you need secured loans when looking to buy a petrol station.

What are the eligibility requirements for a business loan? How is income assessed?

Income is assessed on affordability. For example, if your petrol station turns over £500,000 and you’re applying for £500,000, it’s going to be tight. Nobody would lend 100% of your business turnover. It’s all dependent on your turnover and cash flow.

Typically cash flow is normally okay in a petrol station because you’ve got people coming in and out, all day. Then there’s the supplementary income of a convenience store – somebody goes in to pay for their petrol and they might do a shop there as well.

Your credit history is also taken into account. But typically speaking, the main thing with loans is to evidence that you can afford to pay it back. That’s based on your last six months’ bank statements and a set of year end accounts. It also helps to have a proven track record. You don’t need to have been running a petrol station for 20 years, but can you demonstrate that you have run a decent business over the last two years?

What are the benefits and risks of a business loan?

The clue is in the title with an unsecured business loan. Whilst they do typically carry a slightly higher rate because they are unsecured, the main benefit is that they’re quick.

There are no valuations to be done on assets or property, or debentures on companies. There are no charges on property or business assets or equipment. Typically we turn around an unsecured business loan the same day or next day.

With equipment finance and leasing, the risks are that if you don’t repay the finance, somebody comes in and repossesses the equipment listed on that lease agreement. It’s similar to what happens if you didn’t pay your mortgage – somebody repossesses your house.

With a secured loan, too, if you don’t pay, your petrol station can be repossessed. You’ve got to weigh up the risks and the rewards.

What is the repayment term for a business loan?

Between six months and five years, typically. If you’re using the loan for growth, perhaps purchasing another petrol station where it’s a high value, the term is more likely to be at the five-year mark.

More typically our arrangements are 12 to 24 months, just because we primarily help with short-term cash flow issues. Perhaps there’s a one-off bill – a tax bill is quite a common one. Obviously, the shorter the term the higher the monthly payment.

What happens if a borrower defaults on a loan?

It’s good to explain this, because there is occasionally some confusion around the terminology. With an unsecured loan, the directors or shareholders are asked to sign a personal guarantee in all instances. There are no business loans without personal guarantees.

The funder needs to see commitment and confidence from the business owners that they will pay the loan back. If they don’t, the guarantor would be asked to make the payment.

Signing a personal guarantee doesn’t go on your credit file. Also, it doesn’t mean that if the business misses a monthly payment you’re suddenly going to be homeless.

We do find sometimes that when people get into financial difficulty, they want to ignore it. They might be frightened of that personal guarantee. But all lenders want is their money back. They will work with you as long as you’re forthcoming about it.

If you’ve got a problem, call us, or call the lender. We always try and help. Nobody wants to repossess houses or issue County Court Judgements. That really only ever happens if a funder is being ignored – somebody’s buried their head in the sand. I appreciate it is a stressful thing. But as long as you keep the lines of communication open, you stand a good chance of everything being all right.

How do I apply for a business loan for a petrol station? What’s the process?

It’s simple – fill in our eligibility form just to make sure we stand a good chance of getting you the funds that you need. That then takes you to an application form which takes around two minutes to fill out. Click submit on that and you will get an email from an account manager, who will be your sole point of contact at Century. You won’t get passed from pillar to post.
They will look after you now and in the future.

We will need some standard information – your last six months’ bank statements, and a full set of accounts. Depending on the amount that you’re looking for, we sometimes need management accounts which you can get from your accounting software. We can usually get you a decision within 24 hours.

We’re really focused on managing your expectations. During Covid, you could borrow £500,000 with no questions asked – but unfortunately times have changed. We’re careful to make sure you understand what realistically we can secure for you. We’re very upfront about what can be done. A lot of people promise the earth and don’t come through – but we prefer to underpromise and overdeliver.

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