Service Station Loans Australia

A freehold investment leased to a fuel operator is the simplest service station deal to finance. The valuer capitalises the net rent at a yield drawn from comparable sales, and the lender tests whether rent covers interest, commonly by around 1.5 times. National fuel brands and large operators typically sign initial terms of 10 to 15 years with options, fixed annual increases of about 3% or CPI, and net lease terms where the tenant pays outgoings. With that lease profile and a clean environmental report, 60% to 65% is common. A lease to a single site independent is assessed on the tenant's financials and usually sits around 55% to 60%.

A freehold going concern is valued differently. The valuer looks at maintainable earnings from fuel, shop and other income, and reports a going concern value along with a value for the land and buildings alone. Lenders vary in which figure they lend against. Many cap the loan at 50% to 60% of going concern value and check that it is also reasonable against the bricks and mortar figure. Serviceability is based on the business's normalised profit over two to three years, after a market wage for the owner, so clean vendor records are essential.

A leasehold business is the hardest of the three. There is no land, so security is limited to the business assets, the lease and the supply agreement. Lenders commonly cap lending at around 50% of the purchase price, often less, and many will only proceed with residential or commercial property as extra security. The remaining lease term, including options, should comfortably exceed the loan term. Loan terms are short, commonly three to seven years. Buyers should also understand whether they will be the fuel retailer earning a margin or a commission agent paid per litre, because the income profile is very different.

Environmental risk runs through every one of these deals. Underground petroleum storage systems are regulated by state environmental authorities, and operators have ongoing leak monitoring and record keeping duties. Lenders typically ask for an environmental site assessment. A preliminary investigation reviews site history, tank records and existing monitoring wells. If it raises concerns, a detailed investigation with soil and groundwater sampling follows. Tank age and construction are central, as older single wall steel tanks carry more risk than modern double wall systems. Lenders also check the lease to see whether the tenant must remediate and remove tanks at the end of the term.

Fuel supply agreements and trading data matter on any deal where you run the business. Lenders and valuers review litres sold per month by grade, the three year trend, gross margin per litre, shop sales and shop margin. They read the supply agreement for its remaining term, pricing formula, minimum volumes, rebates, exclusivity and ownership of pumps, canopy and signage. An agreement that cannot be assigned to the buyer, or that expires soon after settlement, weakens the application. Nearby competition, planned road changes and site access are also standard valuer commentary and affect the maintainable earnings figure.

The move to electric vehicles is now a standard credit consideration, and lenders deal with it through structure. They look at how long the loan runs compared with the lease, how quickly the debt reduces, how much income comes from the shop, food and other non-fuel sources, and what the land would be worth for another use. A corner site on a main road with good underlying land value gives a lender more comfort than a remote site valued only on fuel trade. Expect questions on these points. They are part of normal assessment, not a sign that lenders have stopped funding the sector.

Major banks, non-bank lenders and private lenders all fund service stations, though each lender's list of acceptable scenarios is narrow. Terms of up to 15 years are common for going concerns, with longer terms available for leased freehold investments. GST treatment can change the funds needed at settlement, including whether the sale qualifies as a GST-free going concern, so read how GST works when buying commercial property and get accountant advice. A self managed super fund can only borrow to buy property that meets the business real property rules, covered under SMSF commercial property loans, and licensed advice is essential.