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Financing petrol stations

Written by Dan Armes from ServoPro for C&I.

Petrol Stations are a totally different business to what they were 10 years ago. Fuel retailers can no longer run a profitable business by just focusing on their fuel sales.

All the major fuel retailers as well as large independent groups and smaller operators are investing heavily in revamping their retail offer in order to diversify and cater for the needs of their customers. Petrol stations are no longer fuel outlets, they are a stores which are capitilising on the growing convenience channel and the rise of healthy food options and coffee.

Fuel retailers who are not looking to innovate and invest in their business and looking for new ways to get more sales will simply be left behind in our rapidly evolving industry.

Due to the nature of a petrol station running on low margins, there is not always a lot of cash available to invest back into the business. For this reason, fuel retailers need to find alternative ways to fund upgrades to their sites and fund the purchase of new equipment.

Finance is becoming harder to access

Fuel retailers often struggle with the complicated process of accessing good quality finance at competitive rates. The amount of time and effort in sorting through application forms and finding the best deal is a major source of frustration for our members.

The royal commission into Australia’s financial services sector has caused lenders to tighten up the criteria around lending. We are also finding that banks are becoming more risk averse in order to avoid further attention from government and regulators. This has created further red tape for business owners to navigate when trying to secure business finance.

Because the banks are more cautious they take longer to make decisions on approving finance. This creates pressure and uncertainty for the business owner and leads to poor decision making or missed opportunities. The good news for small to medium business owners is while all the focus of the royal commission is on the big banks more and more financing options are becoming available.

Main types of finance

The three main types of finance we help ServoPro members with are – general business finance, equipment finance and cash flow loans. Most petrol station operators are looking to grow their business either through acquiring additional sites or improving their current site. The type of finance a business owner will need depends on their goals and objectives.

Business Finance

At ServoPro we help our members with the complicated process of buying additional sites and unless they have just won the lottery, finance is required. We advise our members to keep all financial records up to date so that when it comes time to complete an application, the lender will have all the required information to ensure a correct decision is made on the application. Having all the required information readily available indicates good business principles and gives the lender confidence in the business.

Abhishek Maharaj, General Manager at Winquote is a credit advisor as well as a finance and lending specialist for petrol station operators. Abhishek says one of the best ways to ensure your business finance application is approved is to ensure you have a clean credit record. “Make sure all bills are paid on time and accounts are in order. It is worthwhile to check your credit record regularly to ensure that there isn’t anything that has come against your credit record without you knowing,” he said.

When buying a new site Abhishek advises, “Complete all your due diligence on the site you are purchasing. There are many reports that can be completed to help with this including valuation reports, tank tests, soil tests and environmental reports. It is also important to have an in-depth cash flow forecast and business plan. This could be done with the help of your accountant. It is important to have a good strategy which lets lenders know that you are the right person to purchase the petrol station.”

Equipment Finance

Equipment finance is used when you are looking to purchase equipment for your business and instead of paying for it in one lump sum, it is paid for over a period of usually two to five years.

While Bank term loans are usually secured against property and/or leasehold interest in petrol stations, equipment finance loans are secured solely against the equipment that is being financed.

The interest rates and costs of equipment finance depend on the client profile and the asset being financed. Abhishek says “The interest rates will vary depending on the equipment being financed. We have accreditations with the major banks and also other lenders who can offer equipment finance where some banks may not consider. Where an asset is seen as having a higher risk, there is a higher interest cost which is applied given the lenders believe the asset would depreciate faster and have a weaker secondary market”.

ServoPro members are looking to finance equipment like car washes, refrigeration, coffee machines and POS Systems. Another popular option is to finance equipment, including installation and servicing. This type of finance package is mainly used with the installation of fuel dispensers and tanks. With this type of finance package, the equipment, installation and service contract is bundled so the fuel retailer has one monthly figure to pay and gives the peace of mind that the equipment will be fully maintained over the life of the lease.

Cash Flow Loans

Cash flow loans are another type of finance that is widely used in the fuel industry. This type of loan provides a capital injection into the business which allows for the business owner to use it for any business purpose required. Abhishek says “Cash flow loans usually span twelve to twenty-four months and ease any cash flow pressures which the business may be facing”.

“Other benefits to this type of finance include easy application process, quick settlement, no property security required, can be used for any business purpose and are approved based on the turnover of the business” says Abhishek.

This type of finance is ideal for short to medium term solutions. For longer term solutions, alternative funding structures should be explored.

Any successful petrol station operator would tell you that having good cash flow in your business is essential. Not having cash on hand is one of the major contributors to small to medium businesses failing in Australia. Financing can be an effective strategy for ensuring you have cash on hand.

It can be a difficult decision to make whether to spend for example $15 000 on a new coffee machine for your site. Being able to break down that cost into fixed monthly repayments can help you decide whether it is a good idea for your business. It is then easy to calculate how many coffees you need to sell each month, week and day for the investment to deliver a positive return.

Petrol station operators can’t afford to be left behind in our fast changing industry. Finance may be an effective strategy for you to grow your business, ensuring you can compete with others who are upgrading their sites.

Fuel retailers know the difference even half a cent can make when setting their fuel margins due to the volumes being sold. The same logic applies to finance, with the right help and guidance, petrol station operators can make a huge difference to their profitability by getting the right type of finance.

At ServoPro we partner with specialists and experts in their field. Make sure you seek advice from a professional and use a reputable and knowledgeable finance broker who understands the petroleum industry.

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