Getting a Loan to Buy A Petrol Station

Having helped over 3,300 Australian business owners over the past 15 years, I’ve seen first hand the challenges and opportunities you may face to buy a petrol station in Australia.

One of the biggest hurdles for some owners is getting a business loan to fund your purchase. In this article I’ll walk you through the process of getting a business loan for a petrol station, specifically in Australia.

Contents:

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The Petrol Station Industry in Australia

Before we get into the loan process, let’s understand the current state of the petrol station industry in Australia. According to the Australian Competition and Consumer Commission (ACCC) there are approximately 7,000 petrol stations in the country, with a mix of major branded sites, independents and supermarket aligned stations.

The industry is evolving, with a trend towards larger more sophisticated service stations that offer services beyond fuel sales. Many modern stations now have convenience stores, cafes and even post office services, multiple revenue streams. Many business brokers who are knowledgeable and experienced in the sale and purchase of service station businesses highlight the importance of navigating these specific factors and considerations effectively.

Petrol Station Business Viability and Cash Flow

When buying a petrol station you’ll need to consider several factors that will impact the purchase price and your ability to get a loan:

1. Location: A good location with high traffic flow is key to a successful petrol station. Consider proximity to main roads, residential areas and other stations. 

2. Fuel sales volume: This is often the key performance indicator of a station. Ask for historical fuel sales data and analyse the trends.

3. Shop sales: Many stations make a significant portion of their profit from non fuel sales. Look at the performance of the convenience store or other on site businesses.

4. Profitability: Review the station’s financials, focus on cash flow, operating costs and overall profitability.

5. Physical assets: Check the condition of fuel tanks, pumps and other equipment. Upgrades or replacements can be expensive.

6. Environmental factors: Make sure the site is compliant with current environmental regulations. Environmental issues can be a major liability.

7. Brand affiliation: Is the station branded (e.g. BP, Shell) or independent? And what are the implications of any existing franchise agreements.
   
   

Getting Ready to Apply

Once you’ve found a petrol station for sale you’re ready to apply for a loan. Here’s what you need to do:

1. Develop a business plan: This should include aspects just as your financial projections, business strategy for operating and growing the business, and market research.

2. Get your financial documents: Lenders will want to see your personal financial statements, tax returns and details of any other business interests you have.

3. Get a professional valuation: Engage a business broker or valuer with petroleum industry experience to do an independent valuation of the station.

4. Prepare a detailed cost breakdown: Include the purchase price, any planned upgrades or renovations and working capital requirements.

5. Show industry experience: Lenders like borrowers with experience. If you’re new to the industry consider partnering with an experienced operator or hiring a management team.

Business Loan Types and Business Broker Options

In Australia there are several types of loans to consider for a petrol station:

1. Commercial property loans: If you’re buying the freehold property and the business this type of loan may be suitable.

2. Business loans: These can be used to finance the purchase of the business itself and equipment and working capital.

3. Equipment finance: Loans for purchasing or upgrading fuel pumps, tanks and other equipment.

4. Government loans: The Australian Government has various programs for small business which may apply to petrol station purchases.

Lending Options

When applying for a loan to buy a petrol station consider:

1. Major banks: The big four banks (Commonwealth Bank, ANZ, Westpac and NAB) all have commercial lending divisions that do petrol station finance.

2. Specialised lenders: Some financial institutions specialise in petroleum industry lending and may have more specific products.

3. Broker services: Commercial finance brokers can help you through the process and potentially access more lenders. Often a good commercial finance broker can get you better terms and rates that you could get yourself.

When approaching lenders be prepared to discuss:

• Your background and experience in the industry

• Detailed analysis of the station’s performance and potential

• Your plans for operating and growing the business

• How you will manage the risks of the industry
  
  

(Calculator is for illustration purposes only. Talk to use for a quote).

What to expect lenders to consider

Lenders will assess your application based on:

1. Loan-to-Value Ratio (LVR): For petrol stations lenders require a lower LVR than other commercial properties, usually around 50-60%.

2. Serviceability: Your ability to repay the loan based on the station’s cash flow.

3. Security: The value of the assets being used as security for the loan.

4. Industry outlook: Lenders will look at the broader fuel retail sector.

5. Environmental risks: Given the business, lenders will focus on environmental liabilities.

Independent Service Station Industry-specific Things to Consider

When applying for finance for a petrol station be prepared to address:

1. Environmental compliance: Show the station meets all current environmental regulations and you have plans in place for ongoing compliance.

2. Fuel supply agreements: If the station has an existing agreement with a fuel supplier, understand the terms and how they will impact your business.

3. Technological changes: Explain how you will adapt to industry changes like electric vehicles.

4. Diversification: Show plans for diversifying income streams beyond fuel sales, such as expanding convenience store offerings or adding services like car washes.

FAQs

How much does it cost to open a new petrol station?

Opening a petrol station in Australia typically costs between $2 million and $5 million, depending on location, size, and whether you’re purchasing an existing business or starting from scratch. This includes land, construction, equipment, and initial inventory costs.

Is buying a petrol station a good investment?

Buying a petrol station can be a good investment in Australia, offering stable cash flow and potential for growth. However, success depends on factors like location, management skills, and market conditions. Careful due diligence is essential to assess profitability and potential risks.

Is petrol station business profitable?

Petrol station businesses can be profitable in Australia, with average net profits ranging from 2% to 5% of total revenue. Profitability varies widely based on location, size, and additional services offered. Non-fuel sales, such as convenience store items, often contribute significantly to overall profits.

Getting Started

Buying a petrol station in Australia with a business loan requires preparation and knowledge of the industry and lenders. By researching the business opportunity, preparing a detailed loan application and addressing lender concerns you’ll be ready to finance your petrol station purchase.

It’s not always easy, but owning a petrol station can be a great business. With the right location, management and finance you can build a profitable business that is the heart of your local community.

As you start this journey don’t be afraid to seek advice from industry professionals, business brokers, accountants and lawyers. They will be a huge help in navigating the process of buying and financing a petrol station in Australia’s fast changing market. And of course, the team here at Smart Business Plans – expert commercial finance brokers. 

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