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Convenience Store Loans

While the local grocery store has increasingly given way to the growing number of supermarkets, the need for small-scale convenience stores ("c-stores") with basic-need consumer items has remained strong.. According to the National Association of Convenience Stores, there are more than 148,000 c-stores in the U.S., that have a combined $680 million in revenue.

Location is one of the most important considerations for business owners when they decide to open a convenience store. Strong c-store sales rely on a high average daily traffic count on the primary and secondary roadways surrounding the business location. While c-stores on their own can be very successful, many c-stores are attached to gasoline stations, which allow for increased traffic and often times account for higher total business revenues.

The types and availability of financing for c-stores depends in part upon the specific loan request being made. Financing options have traditionally been fairly broad and can include conventional as well as SBA loans. There are various loan purposes to consider as a borrower depending on whether the c-store owner is looking to purchase an existing business, obtain start-up financing for a new store, seek leasehold improvements, remodel, pursue construction of commercial property, or request financing for machinery, equipment and inventory.

Convenience Store Loans: Which Loan Product Is Right For Me?

There are several loan products that have been used to finance convenience stores, which can be structured as fixed, variable, or fixed to floating. Traditionally convenience stores have received fairly competitive loan terms and rates, with current interest rates generally ranging between 4 and 9 percent across most types of financing. The term and amortization is often structured anywhere between five and twenty-five years, depending on the assets being financed with the loan. Financing for hard assets such as machinery, equipment and real estate generally receive terms between fifteen and twenty-five years,while a loan for working capital and inventory could have a term of five to ten years. There are several loan products that borrowers should consider for convenience store financing, including:

Use the Fundability App see how fundable you are in the eyes of business lenders

Conventional Loans

Conventional loans are typically made by traditional banks and some non-bank lenders. These loans are not guaranteed by any third party and the bank or lenders assume the full risk of the loan. Therefore, credit standards are usually higher for conventional loans. Pricing and terms can be more flexible for conventional loans as lenders can price lower for stronger loan requests.

SBA Loan

The Small Business Administration's (SBA) 504 and 7(a) loan programs are both popular alternatives to traditional financing options. A percentage, typically 75% of the full loan, is backed by the SBA so banks and lenders assume less balance sheet risk on the loan. However, all lenders utilizing SBA loan programs have to adhere to stringent loan eligibility requirements and SBA Standard Operating Procedures for loan underwriting. This includes the pricing and terms for the loan. For the SBA 7a product, loan pricing can be priced using the Prime lending index plus a maximum spread of 2.75% - which is essentially the cap on the rate. Lenders may use variable rate pricing so as the Prime rate goes up or down the interest rate on the loan will move up or down as well. Terms are structured based on the assets being financed.

Asset Based Lines of Credit

Convenience stores may use asset based lines of credit for an array of business uses. Asset based financing can be either revolving or term loans secured by assets such as accounts receivable, real estate, equipment or inventory. For more on Asset-based loans click here.

Unsecured Business Line of Credit

Unsecured credit refers to loans or lines of credit where there is no collateral to back the loan. Although this type of lending is possible for convenience stores it is considered risky for lenders. The borrower's personal financial strength as well as the business cash flow needs to be strong in order to qualify for an unsecured line or loan.

Merchant Cash Advance

The merchant cash advance product is financing based on credit card receivables where the merchant cash provider will advance monies based on historical performance or credit card sales. This financing mainly works for brick and mortar retail, online retail or restaurant businesses where there is a large volume of credit card sales. Merchant cash is considered short-term financing and can be funded quickly for businesses.

Seller Carry Financing

For buyers of an existing convenience store it may be possible to negotiate financing with the seller. In lieu of receiving the full purchase amount, the seller may be willing to finance all or part of the purchase price. In this scenario the buyer and seller would negotiate the interest rate and terms of the financing. Typically sellers want to get paid out on the note within three to five years of the sale. One benefit of seller carry financing is that the seller will be supportive of the transition and should offer training to ensure that the buyer is successful taking the business operations over.

Credit Parameters for Convenience Store Loans

Credit parameters can vary across financial institutions depending on their appetite for convenience store loans. Many lending institutions look at Loan To Value (LTV) which is a measure of available collateral to back the loan. Lenders may establish the loan amount as low as 55 percent to a maximum of approximately 90% of the available collateral. Debt Service Coverage (DSCR) is a measure of the available cash-flow from the business to cover loan payments. Lenders typically like to see a minimum ratio of 1.25X or 1.35X available cash to the annual requested loan payments. The higher the ratio the better, as lenders like a larger cash cushion should a business see a dip in sales. The personal financial strength of the borrowers or business owners will also be analyzed by the lender. Lenders want to make sure that borrowers have enough liquid cash to both inject into the deal as well as for any problems that might arise in the future. The personal credit of a borrower and how they have managed debt will be looked at by the lender through a Credit Report.

Convenience Store Loans: Common Issues

Because c-stores operate in high traffic areas, hold large amounts of cash, and sell high volumes of low-cost products, theft and fraud are common problems. There are also regulatory compliance concerns for c-stores that sell cigarettes, alcohol and lottery. It is important to comply with age identification laws to avoid paying fines or risking store closures. Additionally, the variety of taxes that must be paid, data security rules for electronic payments, and labor laws also add layers of complexity to compliance. Finally, since many c-stores carry perishable items like dairy and cooked/prepared foods detailed inventory monitored is needed to make sure that products don't expire before they are sold.

Apply for a Convenience Store Loan

Securing financing for a convenience store depends largely upon the scale and purpose of the loan, but all such loans require comprehensive information on the business and the borrower. This includes financial and tax records for the store, a detailed business plan and loan plan, projections of expected earnings, personal financial and tax records as well as resumes for all purchasing parties, and a listing of all the stores assets and relevant documents detailing any proposed transactions involving the store.

Where to Get a Convenience Store Loan

You can apply for a convenience store loan with one of the 5,000 lenders on BoeFly. A single loan request through BoeFly is the most efficient way to seek a c-store loan. Many individual banks or lenders can start the loan process, but BoeFly helps convenience store owners by creating lender competition for their business, presenting an array of funding options, pricing and terms.

Ready to start? Contact 1-800-277-3158 for a free consultation.

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