Common Mistakes When Buying a Petrol Station

Buying a petrol station is not like buying a cafe or a retail shop.

The stock alone can run into six figures, the lease structure often ties you to a major fuel supplier, and the margin on fuel sales is tighter than most buyers expect. If you are looking at a service station in Wellington, you need finance that covers the business purchase, the opening stock, and enough working capital to manage the gap between paying suppliers and collecting from customers.

The Stock Component Catches Most Buyers Off Guard

You will need to fund the fuel in the ground and on the forecourt at settlement. For a mid-sized service station in Wellington, that stock value can sit between $80,000 and $150,000 depending on tank capacity and whether the site includes a convenience store with additional inventory. Most lenders will not roll the full stock cost into the business loan for the purchase unless you have a strong deposit and solid trading history in the industry. The result is that buyers often need a separate working capital facility or a larger deposit than they budgeted for. Some lenders treat stock as part of the business asset and will lend against it, but they will want to see proof of turnover and a valuation that confirms the stock is saleable and correctly accounted for.

Consider a buyer looking at a BP or Z Energy branded site in Johnsonville. The business might be listed at $400,000 plus stock at valuation. The buyer has $120,000 in cash and assumes that will cover the deposit and leave enough for settlement costs. Once the stock valuation comes back at $110,000, the buyer realises they need closer to $230,000 in total funds at settlement, or they need a lender willing to finance a portion of the stock. A business finance structure that includes a term loan for the business purchase and a separate overdraft or stock finance facility can bridge that gap, but it requires upfront planning and a lender familiar with fuel retail.

Lease Terms and Fuel Supply Agreements Dictate Your Flexibility

Most petrol stations in New Zealand operate under a lease from a major oil company. The lease term, renewal options, and exclusivity clauses will shape how much control you have and how a lender assesses the security. A lease with ten years remaining and two further rights of renewal is far more bankable than a lease with three years left and no certainty beyond that. Lenders want to see that the lease term exceeds the loan term, or that there is a strong likelihood of renewal. If the lease is tied to a fuel supply agreement with volume commitments or rebate structures, the lender will also want to understand how those terms affect your cashflow and margin.

In Wellington, many service stations are located on high-traffic routes like State Highway 2 through the Hutt Valley or along Lambton Quay and Thorndon. The lease for a site in a high-rent area will reflect that location, and your rent as a percentage of revenue will be a key figure in the lender's assessment. If the rent is fixed but your margin on fuel fluctuates with the oil company's pricing, you need enough volume and convenience store revenue to absorb those swings. A lender will review your profit and loss, balance sheet, and GST returns to confirm that the rent and supply agreement still leave room for a sustainable margin after wages, costs, and loan repayments.

Cashflow and Margin Are Tighter Than Most Retail Businesses

Fuel retail operates on high volume and low margin. The margin per litre can be just a few cents, and your profitability depends on turning that volume consistently while driving revenue through the convenience store, car wash, or other services. If the business relies heavily on fuel margin and has limited non-fuel revenue, a drop in traffic or a pricing war with a nearby competitor can squeeze your cashflow quickly. Lenders will want to see at least two years of trading history, preferably three, and they will focus on the trend in gross profit, not just total revenue. A site doing $4 million in annual turnover might only be generating $200,000 in gross profit, and once you deduct wages, rent, and operating costs, the net profit available to service debt might be $80,000 to $100,000. That determines how much you can borrow and whether the business can support the loan structure you are proposing.

As an example, a buyer looking at a Mobil-branded site in Petone sees strong revenue but notices the business has been managed owner-operator style with minimal staff. The buyer plans to employ a manager and work part-time in another role. Once wages for a full-time manager are added, the net profit drops by $60,000, and the serviceability calculation changes. The lender recalculates based on the adjusted profit, and the buyer either needs a larger deposit or a lower purchase price to make the deal work. Running the numbers before you commit to a sale and purchase agreement is the only way to avoid this.

Lender Appetite Varies Widely for Fuel Retail

Not all lenders will touch a petrol station purchase. Some see the lease and supply agreement as too restrictive, others are comfortable with the model if the business has a proven track record and a strong lease. The banks that do lend into this space will want to see your IRD financials, GST returns, business accounts, and a business plan that explains how you will maintain or grow the revenue. If you are coming from outside the industry, they will want evidence that you understand the operational side or that you have a management structure in place. A registered company with an NZBN and a clear ownership structure will be expected, and the lender will likely require a personal guarantee and security over the business assets, including stock, plant, and equipment.

If the purchase price and stock are being funded through a mix of term debt and working capital, you may be dealing with multiple facilities from the same lender or a combination of bank debt and specialist stock finance. A business finance broker who works with fuel retail clients can help structure the application and present it to the lenders most likely to support the deal. Trying to navigate this on your own, especially if you have not bought a service station before, usually means longer timeframes and more requests for information that could have been prepared upfront.

Settlement Timing and Stock Valuation Add Complexity

The stock valuation happens close to settlement, and the final figure can shift based on delivery schedules and sales in the days leading up to handover. If the stock value comes in higher than expected and your finance is capped at a fixed amount, you will need to bring additional cash to settlement or renegotiate the terms with the vendor. If it comes in lower, you may have surplus funds, but that is less common. The settlement process for a petrol station is more involved than a standard business purchase because of the stock component, the lease assignment, and the fuel company's approval of the new operator. You need a solicitor experienced in this area and a finance structure that has been pre-approved with enough flexibility to adjust for the final stock figure.

The fuel company will also conduct their own assessment of you as the incoming operator. They want to know you can manage the site, maintain brand standards, and meet any volume or service commitments in the supply agreement. Their approval is not automatic, and a delay on their side can push out your settlement date. Your finance approval will usually be conditional on that sign-off, so factor in the time required for both the lender and the fuel company to complete their processes.

Working Capital Is Not Optional

Even if you have enough funds to cover the purchase and stock at settlement, you will need working capital to manage the first few months of ownership. Fuel is often purchased on short payment terms, and while card sales settle quickly, your cash position can still be tight if you are also paying wages, rent, and supplier invoices for the convenience store. A working capital facility or business overdraft gives you a buffer and means you are not drawing on personal savings every time there is a timing gap. Some buyers try to avoid this cost by keeping the loan amount lower, but that often leads to cashflow pressure within the first quarter.

A structured approach to business funding for a service station will include a term loan for the business and fixed assets, a stock finance component or enough loan headroom to cover stock at settlement, and a working capital facility that you can draw on as needed. The interest rate on each component may differ, and the security and repayment terms will reflect the purpose of each facility. Your broker can model this for you and show you what the combined repayment looks like against your projected cashflow.

Call one of our team or book an appointment at a time that works for you. We will review your numbers, structure the application, and connect you with the lenders who understand fuel retail in Wellington.

Frequently Asked Questions