Frequently Asked Questions (FAQS)

Experienced pharmacy lenders know young pharmacists often have a lot of student debt. They factor this into their analyses of the cash flow a buying pharmacist will need to generate from the operation he or she is acquiring. Enough cash flow is needed to not only make the payments on the pharmacy loan, but also on personal debts, including student loans. For most experience pharmacy lenders, this is a routine situation.

This decision is the classic “rent versus buy.” As a starting point, compare the total monthly payment under a rental agreement versus monthly debt service. Be sure to include all costs in your analysis, including rent, insurance, property taxes, etc. under each scenario. Assuming some of the costs under each scenario are similar, look at the purchase price versus the appraised value. Are you getting a deal? Is the building in a rapidly growing area where values are likely to increase? Is the property well located and able to handle a growing customer base as your business grows? If the answer to these questions is yes, it is probably a good long-term investment. As you pay principal on the loan, your net worth grows. Be sure to have the building inspected by a licensed, independent inspector to identify any major problems before you commit.

Many times, a pharmacy can be acquired with no, or very little, equity down. Experienced pharmacy business lenders are comfortable with the pharmacy industry and will stretch to minimize the equity needed upfront, recognizing this can be a barrier for a pharmacist just out of school. If there is a small equity requirement, often the selling pharmacist will take a seller note back for a small percentage (10%) of the purchase price to facilitate the sale. Don’t be deterred if you don’t have a lot of money to put into a good pharmacy. Many industry lenders will view the investment you made in your education as the necessary down payment.

It’s usually a good idea to spend two to three years acquiring the skills to manage a pharmacy before going out on your own. However, a pharmacist surrounded by great advisers (accountants, practice management consultants, experienced lenders, etc), may be ready to buy a practice sooner. Some continuity in the pharmacy’s management personnel is helpful if they are excellent employees.

Pharmacy financing options for an acquisition or expansion are more available. This is because an existing pharmacy has an established customer base and a historical cash flow that can be analyzed. A startup will have a period of negative cash flow before becoming established, which is harder for most lenders to finance. If you are doing a startup, it is critical to find a lender who will help provide the working capital (cash) necessary for the first few months of operation.

Most pharmacy lenders want to see three years of financial statements (usually tax returns) on the business being acquired, three years of personal tax returns, a personal financial statement showing assets and liabilities, a resume and a description of how the loan proceeds will be used (cost breakdown if a construction project). They’ll also ask for copies of leases on the property and current business debt outstanding. A business plan is typically required for a startup. To make an acquisition, you’ll need to provide a copy of the purchase contract.

A pharmacy loan can usually be closed in 30 days if all information is available. You may have better luck if you work with a lender who specializes in banking for pharmacists.

A credit score above 700 makes getting a pharmacy loan easier. A score below 700 will probably require some explanation if there are negative marks on a credit bureau. Some lenders have minimum acceptable scores, while others such as Live Oak Bank will look beyond a low score to the explanation of how it got that way.

A pharmacy that is growing revenues with a cash flow margin above 6 – 10% before an owner’s salary is usually viewed favorably. If a pharmacy’s revenue has been declining or if the margins have been poor, it requires a more in-depth analysis. Has the current pharmacist been cutting hours, leading to lost revenue? Is the business not generating good margins because the owner has been ill and paying relief pharmacists to staff the operation? What expenses can be added back that will not reoccur in the future? What is the acquiring pharmacist’s experience level? Has he or she practiced in this market before? Lenders’ analyses revolve around whether the business can support the debt service and the owner’s cash requirements going forward.

In a startup, four primary factors are considered:

• Market attractiveness measured in population growth and median income levels
•  Strength of competitors
•  Location of the proposed pharmacy (hopefully a convenient building in an area of high residential growth)
• The pharmacist’s experience and energy levels

A startup can be very successful, but it takes a pharmacist with energy, creativity and excellent advisors and supporters. Someone very familiar with the market is typically the best candidate.

In a startup, four primary factors are considered:

• Market attractiveness measured in population growth and median income levels
• Strength of competitors
• Location of the proposed pharmacy (hopefully a convenient building in an area of high residential growth)
• The pharmacist’s experience and energy levels

A startup can be very successful, but it takes a pharmacist with energy, creativity and excellent advisors and supporters. Someone very familiar with the market is typically the best candidate.