Board Topic: Gas Station Purchase Price
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Gas Station Purchase Price

Posted by: Sanjiv Patel Oct 17 2003, 12:56 AM
Hi;

I have two questions.

I am looking to buy a gas station in Nothern California. What would b eth rule of thumb for the valuation compared to Owner's Discreationary Cash Flow?

Are there any banks who can pre qualify me for the business loan, similar to home loan? OR is it always dependant upon which business I would buy?

Thanks.

Sanjiv

Posted by: Rick Oct 17 2003, 11:16 AM
Sanjiv,

With respect to your second question, it is very unlikely (almost impossible) for any credible lending institution to pre-authorize a business loan. Lenders will want to know what business segment, where the business is located, past financials for the business, how you will service the loan, your experience in running a business of this type, etc, etc. A well developed business plan is an important tool for getting some interest from potential lenders.

Hope this helps

Cheers,

Posted by: loanuniverse Oct 17 2003, 01:48 PM
Sanjiv:

When doing my credit analysis, I look mostly for the capability of the business to repay the loan. In addition, I look at alternative sources of repayment. All of the picking apart of the financial statements is done mostly with the purpose of supporting the sources of repayment and making sure that they are adequate.

When I talked about valuation of a business in my valuation article, I did so mostly to help people have some understanding about the source of the numbers and being able to challenge an overpriced valuation with some ammunition. I do not have a rule of thumb regarding gas stations, in fact the examples of rules of thumb that I used in that article I found either somewhere else in the net or a printed article about that industry. I forgot….

Having said that and as long as you understand that I am not a “Business Valuation Expert”, I can tell you that the ideas that I wrote down in that article can be applied to all industries. You will have to do some research and maybe ask for help from someone familiar with these businesses. Another thing that comes to mind regarding gas stations is be aware of environmental problems and regulations. For instance, a couple of years ago a law came into effect in my state that required a new type of underground tank to be in place and replacing the outdated single-hull tanks was a potential liability that might have gone unnoticed by a potential buyer. I remember doing a loan to finance the new tanks for a small gas station. The tanks alone were worth more than the gas station appraised for.

Regarding your second question, Rick is right. Going back to basics and banks looking for the source of repayment, there is no way to calculate if a business can repay the loan or the risks of the business without even knowing what the business is.

The only thing I can think of is a line of credit made out to you personally based on your personal income, net-worth and credit history so that you can go ahead purchase the business and the possibly refinance. These types of lines are available to the premier customers of financial institutions, but that would be consumer credit and it is not my thing.

Hope this helps.
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