How to Get an SBA 504 Loan for Your Gas Station

how an sba loan can help your gas stationThere are over 168,000 gas stations in the United States, many owned by immigrants, families, and women. Despite their crucial role in the everyday lives of millions of people, gas stations generally do not get the best financing options from conventional lenders. Those looking to get into this industry or expand their already established business will find it difficult to lock down necessary funding.

It is hard to find financing for any small business, but gas stations in particular have even more difficulty. Thankfully, the Small Business Administration (SBA) offers the 504 loan program to gas station owners who are otherwise running on empty. The 504 program was made to help small businesses attain quality financing to fill this gap and promote job growth and economic development, in which gas stations play a significant part. Besides the favorable conditions on 504 loans, you will find experts at Certified Development Companies (CDC), the non-profit organizations that administer the loans, who are knowledgeable and eager to help you find the financial resources you need.

Why Is It Difficult to Get a Conventional Loan for a Gas Station?

Conventional lenders are generally hesitant to finance gas station businesses for a few reasons:

  • Accounting issues related to a heavy dependence on cash payments. Tracking cash flow is more complicated when a large amount of your turnover is in cash. Your tax returns have greater weight in the approval process in this case. If your records show a low or decreasing cash flow, it will work against you.
  • Environmental concerns (and extremely expensive potential cleanups). Leaky tanks are the biggest risk a gas station owner faces, and cleanup costs can run into the hundreds of thousand of dollars. It’s not a risk that banks are eager to share in.
  • The single-use nature of gas station sites. Gas stations are one of those facilities that are expensive and difficult to convert to any other use. That can make them harder to sell and so a bigger risk for crediting.

These kinds of considerations can lead to a low rate of approvals and difficult conditions on conventional loans.

How Does the 504 Loan Do Things Differently?

The 504 loan is administered by nonprofit CDCs. Their mission is lending to business owners who want to purchase land, buildings or long-term equipment or to renovate and upgrade their existing facilities.

The down payment on a 504 loan is 15% for single-purpose properties, including gas stations, rather than 10%. Compare that to the 40% down payment that a commercial bank is likely to ask for.

How Have Gas Station Owners Used 504 Loans to Drive Success?

The 504 loan even covers the construction of a brand new building from the ground up. This is what the father-son team, Behrooz and Ali Mirshafiee, are doing. They received a 504 loan through TMC and are partnering with their cousins Bijan and Amir Dehbozorgi to build a 76 station with a Subway shop in Hesperia, California. The 504 loan financed the purchase of vacant land on Fashion Way and the ground up construction costs of both a gas station and fast food restaurant.

In 2013, Charanjiv Dhaliwal purchased land in Concord, CA to construct an Arco gas station, an AMPM minimarket and a Popeye’s Chicken fast food restaurant with an SBA 504 loan. With years of experience as a franchisee for several gas stations and fast food restaurants, Charanjiv was considered a strong borrower. In addition to this location in Concord, his company owns and operates several other franchises in Berkeley, Fremont, Pittsburg, Oakland, San Lorenzo, and Vacaville. The company has grown tremendously since 2013, they are applying for two more SBA 504 loans for additional locations in 2018.

How Does the 504 Loan Work?

The 504 loan comes in three parts, facilitated by a conventional lender, a CDC, and the borrower. Here’s how that breaks down percentage-wise for a gas station:

  • The first loan comes from a conventional lender and amounts to 50% of the total loan. You and that lender determine the amount and conditions of that loan, which becomes your first mortgage.
  • Your CDC facilitates a separate SBA loan of 35% of the total, up to $5 million, for 10 or 20 years at a fixed, below-market rate. You can receive up to $5.5 million for projects eligible for the SBA’s Green Energy Program. This will be your second mortgage.
  • Then you, the borrower, will contribute 15% to the loan. This is the down payment requirement on a 504 loan for single-purpose properties.
  • 50% Conventional Lender
  • 35% CDC
  • 15% Borrower

How Can Gas Stations Make the Most of the SBA’s Green Energy Program?

Projects that are eligible for the SBA Green Energy Program can receive up to $5.5 million from the SBA in a 504 loan and there is no limit to the number of projects when green efficiency requirements are met. You can qualify for the Green Energy Program by improving your energy efficiency by 10% or by producing renewable fuel with equipment purchased through the loan. Installing solar panels on the roof or investing in energy-intensive refrigeration systems are two examples of implementing energy efficiency.

Gas stations, especially those located in the California area, are in a unique position to take advantage of this program by participating in the growing market for electric cars and alternative fuels. Californians are more than three times more likely to drive electric cars than the national average, and in most of California, there are not enough charging stations to meet demand. Installing an electric vehicle (EV) charging station alongside your gas pumps could also make you eligible for the SBA Green Energy Program.

“When you build a station, it’s like moths to a flame for EV drivers,” an industry leader recently said in a newspaper interview. There are ample franchising opportunities for electric car recharging stations, and they can be owned independently as well. A charge can take half an hour or more, so it can drive business to a nearby convenience store, café, or rest area.

The 504 loan can open up many possibilities for the growth of a gas station business. A loan expert at a CDC can tell you about these possibilities in detail and how they can help your business. TMC Financing is a Premier Certified Lender with the SBA. The experts at TMC can help you create the loan package that best meets your business goals. If your business is located in California or Nevada, and you are seeking financing for you gas station, contact one of our local 504 loan experts today.


Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison