The gas station sector is a thriving market worth billions of dollars with plenty of room to run. Entrepreneurs eager to diversify their portfolio or break into a new segment should heavily consider gas station ownership.
Of the 145,000 fueling stations in the US, large refiners own less than 5%, according to the American Petroleum Institute. The majority of owners are either individuals or families that run a single site, proving that it’s very feasible for entrepreneurs to be successful without owning a huge chain.
If you're thinking about entering the gas station industry, it's essential to determine the cost of building or opening your first location and identify the potential financing options. This article will provide valuable insights into these topics and equip you with the knowledge required to start in this dynamic industry.
Is Owning a Gas Station a Good Investment?
The gas station industry realized $152 billion in revenue in 2022, marking one of the strongest years in the history of the industry.
There are many reasons why entrepreneurs choose to invest in gas stations, including the fact that there’s steady demand for gas, franchise opportunities to simplify brand recognition, and low labor costs in daily operations. Multiple revenue streams like an accompanying c-store or carwash mitigate risk and improve profits since the fuel itself has lower margins. That’s why over 80% of retail gas stations also feature a c-store.
What Are the Startup Costs for a New Gas Station Business?
Costs for opening a gas station vary by region for planning, permitting, site acquisition, construction, and working capital expenses. Below you’ll find rough estimates of the various costs that go into to building a gas station.
Planning and Permitting | $100,000 - $400,000
In most cases, you'll need to hire architects and engineers to design your gas station and ensure it meets local building codes and regulations.
Once your plans are approved, you'll need to go through an entitlement and permitting process. This will involve obtaining the necessary permits and licenses from local government agencies, such as conditional or special use permits, building permits, environmental permits, business licenses, and liquor licenses. The costs associated with these permits and licenses can vary depending on the jurisdiction, and the process can be time-consuming, so it's essential to factor these costs into your budget when planning your gas station.
Depending on the site, you may even need to apply for zoning variances, which allow you to deviate from local zoning regulations to accommodate your gas station project. It can be a complex process, as it often requires presenting evidence to local zoning boards and obtaining approval from the community. Again, the costs and likelihood of success associated with this process can vary widely depending on your location and the specific requirements of your project.
Site Acquisition | $0 - $4,000,000
When it comes to acquiring a property for a gas station, there are typically two parts to consider: the land and the facility. If you opt to own the land outright, you will likely have to pay a significant sum upfront, which can be a considerable expense for some entrepreneurs. However, owning the land can also provide a sense of security and stability for the long-term success of your gas station business.
In contrast, leasing the property may require a lower upfront cost, but you have less control over the real estate after investing millions of dollars in a property that you don’t own.
If your goal is to purchase a piece of land with a run-down gas station that you want to rebuild, the cost can vary widely depending on location and other factors. You will also need to consider the cost of building or renovating the gas station facility. Find out more about construction costs in the next section.
Facility Construction | $2,500,000 - $6,000,000
There are a variety of factors that influence the cost of construction, including the size of the gas station, the type of fuel offered, and the amenities and services provided. Will there be a carwash? Or a dedicated diesel canopy?
Given the specialty nature of gas station construction, it is critical to choose a general contractor who is experienced in gas station construction, even if it costs a little more upfront. Choosing an inexperienced contractor can be much more expensive in the long term as mistakes in construction could lead to major issues down the road that are much more costly to address.
Equipment | $1,000,000 - $2,000,000
Depending on the services your gas station will offer, the range for the equipment budget can be broad. While all gas stations need pumps and tanks, the types of fuel sold can impact the quantity or capacity of pumps and tanks needed.
Assuming there’s a c-store on-site, you’ll need to budget for refrigeration, display cases, drink dispensers, and storage capabilities for beverages and snacks. Food services are a growing revenue source for gas stations, representing 25.6% of average monthly in-store sales and 36.1% of in-store gross margin, according to the National Association of Convenience Stores. So, if you have a QSR, you’ll need additional equipment.
A carwash can be comprised of a tunnel system that allows vehicles to pass through while being washed and dried automatically or a roll-over system where the equipment moves back and forth over the vehicle. Separate equipment for vacuuming is also usually necessary. Despite the initial investment, a drive-through carwash can be a valuable addition to your gas station, providing a convenient and high-quality service to your customers while generating additional revenue for your business.
Working Capital | $200,000 - $500,000
When starting a gas station, allocating a significant amount of working capital for day-to-day operations and opening inventory is essential. Plan to set aside between $200,000 to $500,000 for pre-opening expenses such as hiring, uniforms, marketing, payroll, and inventory. This will provide a cushion for the first 90-120 days of operational expenses as the business begins to ramp up.
The total cost of starting a gas station can vary widely depending on factors such as equipment and real estate prices. The cost may range from $3.85 million to well over $10 million. However, there are several financing options available that can help make starting a gas station more accessible, even for those with limited financial resources.
What Loans Are Available for a New Gas Station?
Building a new gas station can cost over $10 million based on the above estimates. The majority of operators do not have that sum on hand, so financing will make your gas station goals more attainable.
There are a few loan structures that potential gas station owners can take advantage of, including conventional commercial financing or a Small Business Administration (SBA) guaranteed loan such as an SBA 7(a) or 504 loan. The inherent differences between SBA 7(a) and 504 loans might make one more suitable to your specific scenario.
The experts at PetroCal can arrange a tailored loan that meets your short-term and long-term needs. Working with a knowledgeable and experienced team can provide you with the resources and expertise you need to navigate complex financing decisions, negotiate favorable terms, and ultimately achieve your business goals.
Before applying for a loan, you can save yourself time and headaches by preparing your gas station financing paperwork well in advance! Download our helpful loan document checklist to ensure you have all the necessary paperwork to get started.
