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Financing Options for Pharmacies

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With a CVS or Walgreens seemingly on every corner, it may be challenging to compete with the giants as an independent pharmacy owner. However, many communities rely on independent stores, and pharmacy financing is available if you don’t have the backing of a large corporation or run into financial trouble.

Independent pharmacists are often located in rural or inner-city areas where there may be limited access to medical care. These pharmacists can advise community members on how to treat a variety of health concerns and recommend generic or alternative medications to reduce costs for customers. Independent pharmacies also offer niche services that may not be available from larger chains, like same-day home delivery, immunizations, medication therapy management and compounding to provide custom medication.

The number of pharmacies in the U.S. has grown in recent years, on track to surpass 31,000 in 2019, according to IBISWorld. The Walgreens Boots Alliance has the largest presence in the industry, but that doesn’t mean independent pharmacies can’t succeed. Nearly 22,000 pharmacies are independently owned as reported by the 2018 National Community Pharmacists Association (NCPA) Digest.

For pharmacy owners looking for a boost, pharmacy loans could stimulate growth or provide financial reprieve. Keep reading to find out what type of financing you could obtain for your pharmacy.

Why would you need pharmacy financing?

Opening a pharmacy could cost nearly $500,000 after adding up all startup costs, such as build out of the space, fixtures, equipment, furniture and inventory.

From there, independent pharmacies can be relatively profitable small businesses and have the potential to earn more than $3 million in annual revenue. But a pharmacy’s profit depends on a number of factors, including inventory costs, which are among the main expenses for these businesses.

Pharmacies buy inventory from primary and secondary wholesalers. Your purchasing contracts with wholesalers would determine how much you pay for inventory, and how much you’ll ultimately pocket as profit.

Another major cost is overhead expenses related to anything that’s needed to run most businesses. Typical overhead costs include insurance, advertising, supplies, utilities and maintenance.

Your sales would cover expenses and, ideally, result in a profit for the business. Prescription sales comprise 92% of independent pharmacy sales on average. Increasing your prescription capacity would lead to higher profit, though that would depend on how much you receive from payers like insurance companies and prescribers.

Offering additional services would also help increase your profit. Independent pharmacies often provide vaccines and immunizations, lab testing, diabetes care or immunizations or medications required for travel to generate extra income.

Despite your best-laid plans to turn a profit, you may have trouble making ends meet within your business. If your pharmacy costs exceed your revenue, a business loan could provide a solution. You could also use a loan to acquire an existing pharmacy or expand the services you provide. Next, we’ll discuss financing options for pharmacy owners, as well as where you could find funding.

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Types of financing for pharmacy owners

When searching for financing for your pharmacy business, you could consider these funding options.

SBA loans

The U.S. Small Business Administration backs loans made to small business owners through approved banks and financial institutions. The SBA’s flagship 7(a) loan is a common option for businesses needing working capital or equipment financing. Borrowers could receive a 7(a) loan up to $5 million with a maximum interest rate of 13.50%. The SBA may require collateral, a down payment or a guarantee fee, depending on the individual loan. The SBA also provides 504 loans to cover real estate purchases and microloans to fund smaller amounts.

Business line of credit

A business line of credit would give pharmacy owners access to funding on an as-needed basis. A line of credit allows you to borrow money from a set credit limit, then pay back what you borrowed over time. And you would only need to pay interest on what you actually withdraw. High-credit applicants could receive a higher credit limit and favorable interest rates, while low-credit borrowers may receive a higher rate and a lower limit.

Term loans

Pharmacy owners could use long-term and short-term loans to cover business expenses. Long-term loans are typically reserved for major purchases like building renovations and usually have repayment terms between three and 10 years. On the other hand, short-term loans can cover smaller, immediate expenses and be paid back in three to 18 months on a daily or weekly schedule. Long-term loans generally have lower interest rates than short-term loans, but slower time to funding. Short-term loans often have fewer underwriting requirements and faster time funding, but higher rates.

Inventory financing

Inventory financing comes in the form of a short-term loan or line of credit and is specifically designed to cover inventory costs. Inventory typically acts as collateral on the loan or line of credit and the lender would finance up to 80% of the inventory value. Inventory financing may come with high interest rates and terms are usually short, requiring daily or weekly repayments.

5 pharmacy loan options for your business

We’ve compiled a list of business lenders that focus on pharmacies, including traditional banks and online alternative lenders. We put an emphasis on lenders that provide details on their websites, including loan amounts and repayment terms.

Live Oak Bank

Live Oak Bank, headquartered in Wilmington, N.C., specializes in SBA loans for several types of businesses, including pharmacists who want to purchase commercial real estate, acquire a new pharmacy business or refinance existing debt. Live Oak’s real estate loans are available to purchase an existing facility, build a new pharmacy or remodel a space. Terms can be up to 25 years. Your loan amount, interest rate and terms would be determined during the underwriting process, which could take one to two weeks. Live Oak’s refinance loans typically have terms up to 10 years and can be used to decrease monthly payments on current debt. You’d need to go through the same underwriting process to determine your rate, term and loan amount.

MedTrust Capital Group

MedTrust Capital Group is an online business lender specializing in the health care industry. MedTrust Capital offers working capital pharmacy loans up to $5 million. You could use a working capital loan to cover cash flow needs, marketing costs, taxes, new employee costs or personal debt. Terms range from six to seven years, and interest rates are based on the prime rate plus 1% or 2%. MedTrust Capital also offers commercial real estate loans, refinance and acquisition loans, and startup loans for new business owners.

Ameris Bank

Ameris Bank is an SBA preferred lender that offers SBA 7(a) and 504 term loans to qualifying pharmacy owners. You could use these loans to pay for working capital expenses, acquisition of real estate or an additional pharmacy, equipment costs or debt refinance. If approved, you could receive a loan that covers 100% of your costs.

Bankers Healthcare Group

Bankers Healthcare Group is a health care-focused online business lender. Pharmacy loans from Bankers Healthcare Group are available from $20,000 to $500,000. You could use the funding to renovate your pharmacy, refinance existing debt or upgrade your technology. Bankers Healthcare group advertises loan approval in 24 hours and funding in as few as three days for qualified borrowers.

First Financial Bank

First Financial Bank is an SBA preferred lender that serves businesses in Arkansas and Mississippi. First Financial Bank works with borrowers who are buying or refinancing a pharmacy business. The bank’s SBA-backed offerings can be used to finance equipment, expansions and remodels, acquisitions or startup ventures.

The bottom line

Independent pharmacies are valuable assets in their communities, sometimes offering products and services that big-name chain stores don’t provide. But because the majority of income comes through prescription sales, which are dependent on what insurance companies are willing to offer, cash flow may be inconsistent.

Pharmacy loans could fill financial gaps within the business when you need help paying bills and other expenses. Many traditional banks and online lenders specialize in financing for pharmacies and may be able to provide the right solution for you. Before accepting a loan offer, be sure to shop around to make sure you receive the best rates and terms for your pharmacy business.

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