Bank Loans on Gasoline Plants

Abstract

Abstract This paper presents the various factors concern the economics of gasoline plant design, construction and operation from the viewpoint of a financial institution considering a loan. The gas reserves, plant design, processing equipment, marketing conditions, and estimated construction and operating expenses are reviewed and the information required for the proper evaluation of a loan discussed. The information obtained from the study of the various factors affecting the economics of gasoline plant design, construction and operation are then considered together in predicting the economics of future operation. The effects of depreciation and income tax in the cash throw-off of a plant are also covered. This information is then used to Illustrate the type of loan, the amount that can be loaned, and the repayment ability of a proposed plant being considered. In addition to the above, a discussion is presented of the legal information necessary for the proper processing of the loan and the various legal instruments which are prepared for the protection of the lender. Introduction During the past few years, the increased demand for natural gasoline, butane, and propane has made the operation of a natural gasoline plant profitable in small fields that were previously considered of no economic value. This has brought an increase in the number of small plants being constructed and has opened the door for small companies and individuals in a field that previously was dominated by major companies. It has been necessary for the small companies and individuals to turn to private lending institutions for financing these plant, since they have not been in a position to finance construction out of income or obtain funds from the sale of securities to the public as have the larger companies. In order to properly make and service gasoline plant loans, it has been necessary for banks to set-up a yardstick which can be used as a basis for determining the value of a plant and the amount which can be safely loaned. It is desirable that such loans be arranged on a conventional basis; that is, for the amount loaned to be adequately secured by the value of the plant with a means of liquidation being provided by income generated by the plant. Such a loan is considered a secured loan and is the type which this paper will consider.