Finding the right capital structure for gas and convenience

The gas and convenience store industry is defined by hundreds of small and medium-sized regional operators with unique brands and innovative ideas. Many of them have expanded as opportunities came along, financing purchases where they could. While several large chains have thousands of stores in the U.S. market, they are only part of the picture. A long list of regional gas and convenience store companies are smaller and privately owned, running several dozen to several hundred locations. Some have been in the same family for generations.  

The financial needs of these companies change as they grow. They may have expanded by adding properties or buying competitors and taking financing from different sources at different times. The result may be a collection of mortgages and credit facilities from multiple banks, perhaps spread among several legal entities. At some point, they may benefit by rethinking their borrowing strategy to simplify the capital structure and streamline lending relationships. 

A more formalized corporate capital structure becomes advantageous. A financial strategy that leverages the entire asset base and combined cash flows of the business may allow a company to improve its capital access and have funds available for acquisitions or new construction. 

Rethinking the capital structure may not be top-of-mind for owners, but it should be a business focus. “When I talk to clients and attend conferences, it’s clear that these companies devote a lot of time and attention to the operational aspects of their businesses,” says Jason Noll, leader of the retail and wholesale fuel business group at Capital One. “But the next competitive boost comes from greater focus on the financial side, pursuing a holistic approach to create a more formal corporate capital structure.”

The right capital structure for the enterprise can provide gas and convenience store operators with quicker access to capital when they need it, and greater borrowing capacity. It can foster easier administration and a more clearly defined long-term relationship with lenders—a big improvement over shopping for funding every time the company plans a new location or has some other financing need. 

Many operators find their capital structure becomes overly complex as they add properties and facilities from various lenders. To gain efficiency, more companies are now moving away from this decentralized model and consolidating their financing into a unified capital structure. This often includes evaluating solutions like unitranche loans that provide more flexibility than traditional, piecemeal financing.

Capital One recently helped a Southwest-based, multi-generational operator with over 200 locations create a capital structure that fit its needs. Over time, the company had entered into multiple loan structures across a number of legal entities, developing relationships with several banks. This worked well for a long time, Noll says, but as the company got bigger, there were significant benefits to be found in replacing this more fragmented financing strategy with one that offered greater flexibility and scalability.

The financing for the company, which is run by the third generation of the family, now has three main parts:

• A larger revolving credit line that provides cash for daily operations, and general corporate purposes 

• A sizable developmental line that’s locked in to fund construction of new stores from the ground up and acquisitions. 

• A term loan that allowed the company to pay off older, legacy debt.

“We think of our role as being like that of the quarterback,” Noll explains. When Capital One is the lead bank working with a gas and convenience store operator, it serves as the arranger and administrative agent for the lending package. The bank structures the deal, commits the first portion of the capital, and organizes a group of lenders to syndicate the loans.  

Small and medium-sized businesses may find that, as they grow, the regional banks they work with are reaching limits in lending capacity or syndication capabilities. However, they may hesitate to go to a larger commercial bank where they worry they will lose the customized services they came to expect from their legacy lender.

Capital One has a specialized team built for the gas and convenience sector that focuses on and serves that middle ground—where small and medium-sized operators can find the lending strategies, loan offerings, advice and industry knowledge to help them improve their business. 

Operators may find that streamlining their capital structure is more than an added convenience—it can be an essential tool to enable future growth. Beyond fueling expansion, a unified approach provides the flexibility needed to navigate shifting market pressures. Whether an operator is addressing rising labor and energy costs or investing in new food service initiatives, a predictable financial foundation allows leadership to pivot quickly. By reducing the administrative burden of managing fragmented financing, owners can devote more time and resources to the operational details that drive long-term success.

Whether you're expanding your footprint, consolidating legacy debt or looking for flexible capital strategies to fund future growth, Capital One's Commercial Banking team is ready to provide the guidance and industry insights to support all of your needs.