pharmacy financing information

A Primer on Pharmacy Financing

Banks are actively seeking good projects to fund and that includes independent pharmacies.

Independent community pharmacy is an evolving yet thriving industry, with many opportunities as well as some challenges. Among the challenges pharmacy owners often face is financing. As a pharmacist and former pharmacy owner, and a banker since 2009, I regularly hear pharmacy owners exclaim: “Banks don’t understand pharmacies, they just don’t get it!” Many times during my 20 years as a pharmacy owner, I felt the same frustration.

Independent pharmacies are often an enigma to bankers. Bankers are generally younger, healthier, and wealthier than the service-seeking demographic frequenting most independent pharmacies. There is often a fundamental disconnect with the industry. Those bankers don’t understand why patients would seek out an independent pharmacy instead of a local chain, grocery store pharmacy or even mail order. These bankers consider an independent pharmacy as a quaint anachronism rather than the $4 million local health care provider. It is often frustrating, but pharmacy owners need to do a better job explaining their businesses, their opportunities, and their prospective financing projects to bankers. Bankers want to lend money to good businesses; independent pharmacies are good businesses.

Of industries tracked by the Small Business Administration (SBA), pharmacies rank among the lowest in default rate. Banks have a number of financing products, including long-term loans (both conventional and SBA-guaranteed loans), and short-term loans such as lines of credit. Pharmacy owners seeking to fund a specific project such as a business acquisition, expansion, real estate acquisition, remodeling, or large equipment purchases should utilize long-term financing or a term loan. Financing a project over the proper term is important. A project should be accretive, or create additional value to the business, while providing sufficient cash flow to service the debt incurred and an additional return to the owner. Short-term financing (such as lines of credit) should be reserved to shore up working capital and pay expenses during irregular cash flow cycles.

Read the full article here: A Primer on Pharmacy Financing