The Best Financing for Starting or Buying a Pharmacy

Types Of Financing for Starting or Buying a Pharmacy

When many of us think about pharmacies, we think of massive chains like Walgreens, CVS, and Rite Aid. However, thousands of communities across the United States rely on independent pharmacies. These independent pharmacy businesses tend to be located in rural and inner-city areas, where pharmacists become integral parts of their communities.

One of the unique things about independent pharmacies, especially in small towns, is that they can provide services that corporate chains cannot. These services may include same-day delivery, medication therapy management, Medicare plan guidance, asthma management, prescription management, and more. All of these allow independent pharmacies to set themselves apart.

Like other healthcare professionals, licensed pharmacists have the opportunity to thrive as small business owners, too. Buying an existing pharmacy or opening a new pharmacy may be difficult if you’re dealing with student loan debts, home loans, and other liabilities. But just because you have debt doesn’t mean you can’t find loans for pharmacists.

In this article:

• Types of pharmacy business loans that may make sense for you
• How to qualify for cheap business loans for pharmacists
• How to choose the right lender and loan product for your pharmacy business

Financing Options for Pharmacists

Medical professionals often leave medical or pharmacy school with significant student loan debt. While those monthly payments may be a hassle, they don’t necessarily preclude you from taking on cheap business loans.

The cost to open a pharmacy may be significant, but small business loan options exist. Although lenders typically judge a borrower’s creditworthiness based on their credit score, time in business, and annual revenues, startup loans for pharmacists are more achievable because of the business’s potential. Pharmacies tend to be profitable businesses, and getting a loan on a pharmacy license is likely more manageable than if you were trying to get startup funds for a more competitive, thin-margin business.

There are many loan programs that may function as doctor loans for pharmacists.

Term Loans

Term loans are conventional loans in which a lender provides an upfront loan amount that is paid back over time, plus interest and fees. The qualifying requirements for term loans may be strict and your application will be subject to your debt-to-income ratio and other factors affecting your financial situation, but you can use loan proceeds for any business need. That makes them useful as loans for pharmacists.

Long-term loans are particularly useful for large purchases that take time to repay. For example, you might want to remodel the entire pharmacy after purchasing it. A long-term loan would be the way to go if it is a large-scale and expensive remodel. Long-term loans often feature repayment terms of two to ten years, and if you have a good credit score, you may lock in a competitive interest rate.

Short-term loans, on the other hand, are good for covering smaller expenses that you know you will be able to pay for in the future but which you don’t have the money for now. For example, you might need a short-term loan to replace a small piece of equipment in your pharmacy or purchase shelving or inventory. These loans tend to have higher interest rates, but the faster repayment period gets your business out of debt.

SBA Loans

Another option for obtaining financing is through the United States Small Business Administration (SBA). SBA loans are partially guaranteed by the federal government, reducing the overall risk to lenders and giving Americans greater access to financing with lower interest rates.

There are a variety of SBA loan programs that may function as physician loans or loans for pharmacists. The most common is the 7(a) loan program, which is a flexible term loan that can be used for working capital, equipment financing, and other business needs. The SBA also offers microloans, working capital lines of credit, commercial real estate (CRE) loans, and other loan types that might be suitable as pharmacy business loans.

The drawback to SBA loans is that they have strict eligibility requirements and typically require collateral as well as a personal guarantee. The loan terms are strict, and providers are often less willing to lend to new businesses.

Business Lines of Credit or Credit Cards

Business lines of credit give small businesses access to funding as needed. Business owners can borrow up to the value of the line of credit, and after repaying this amount (plus interest and fees), they can borrow the amount again.

Even if you don’t need a substantial loan to get your pharmacy up and running, having a line of credit open for your business is usually a good idea. If you have a line of credit, you don’t have to use it – instead, you can keep it open just in case. This is beneficial if you need quick access to capital.

A line of credit is particularly useful for managing and smoothing out your working capital and cash flow levels. Depending on your credit rating, you can obtain favorable interest rates, and opening a line of credit is an option for virtually any business owner, even with bad credit.

You can also use business credit cards to make smaller purchases and pay them off as money starts coming in.

Commercial Real Estate (CRE) Loans

If you are buying or starting a pharmacy, you will most likely have to pay for the land and the building. This is where traditional commercial real estate loans come in. Commercial real estate loans are designed to help businesses purchase the land and commercial property they need to thrive.

Like mortgage loans, you can get fixed rates or adjustable rates that may be refined after a set period of time on commercial real estate loans. While conventional mortgage loans for homeownership often use private mortgage insurance (PMI) when you make a low-down payment, commercial real estate loans typically do not have the same requirement. Instead, the property just serves as collateral.

Unfortunately, the barriers to commercial real estate loans are usually quite high. You will usually need a down payment of at least 20% on a traditional loan and 10% on an SBA CRE loan. Likewise, there may be significant closing costs, and the loan payments will be high on an expensive piece of commercial property. Nonetheless, buying a location may save you more money in the long term over a lease.

Inventory Financing

Inventory financing refers to short-term loans and lines of credit taken out specifically to cover inventory expenses. Often, small businesses, especially when they are first starting out, cannot afford to purchase all their inventory outright. This is where inventory financing comes into play.

For example, if you are opening a new pharmacy, you will need a lot of inventory: everything from band-aids to other medications.

With inventory financing, the inventory itself serves as the collateral on the loan. This makes the loan less risky for lenders since there is always something of value they can repossess if you default on your payments. Since the loans are less risky, you can get better interest rates depending on your credit history than otherwise possible.

Suppliers and Wholesalers

Another way to finance your inventory is to work out a deal with suppliers and wholesalers. Many suppliers and wholesalers will allow you to pay for inventory over a designated period of time. Different suppliers and wholesalers will have different financing options, opportunities, and associated interest rates.

You should consider these things when choosing a wholesaler, as you will want to choose a company with a solid track record and good terms. Remember, building a strong relationship with your wholesaler can lead to better terms for your business, so make sure you find a wholesaler you think you can form a long-term partnership with.

How to Get Loans for Pharmacists

Banking and lending are all about building relationships. In the case of loans for pharmacists, there are a few methods for beginning to form relationships with lenders in the pharmacy and healthcare industry.

Industry and wholesaler trade shows are great places to meet lenders who work in the industry. Prospective borrowers often frequent these shows to build relationships with industry players. One large event is the National Community Pharmacists Association’s (NCPA) annual meeting. This is a great place to meet with loan officers and other lenders to learn about different options. The NCPA Digest can also provide helpful information to current and prospective pharmacy owners.

If you are looking for an SBA loan, ask the lenders if they are an SBA Preferred Lending Partner (PLP). If they are, this means they are qualified to do the underwriting on SBA loans “in-house,” giving you an advantage in securing one.

Loan Application Process

Once you’ve identified the right pharmacy business loan and the lender, you’ll need to get your loan application together.

If you are looking to purchase an existing pharmacy, the lender will want to see the business’s financial statements (balance sheet, cash flow statement, and income statement), sales performance, tax returns, sales and cash flow forecasts, and documentation of your experience, knowledge, or training in the industry. You may need to show your PharMD degree.

If you want to start a new pharmacy, the lender will pay close attention to your qualifications to run such a business and your personal credit history. They’ll need to see your finances, including your savings and bank account statements, current income, and more.

After filing your documents and applying for the loan, the underwriting process may take anywhere from a few days to several weeks, depending on the loan type and lender. In all, expect the application process to be at least a few weeks.

Before applying, always do your due diligence on the lender and loan terms. It’s a good idea to have an experienced lawyer go over the loan agreement with you to make sure everything makes sense and works for your business.

Final Thoughts

Independent pharmacies play integral and vital roles in communities across the United States but getting off the ground and running almost always requires financing.

While financing can often be hard to obtain for new business owners, the key is to be patient and research every opportunity available to you. And remember, while commercial real estate loans are often out of the reach of first-time owners, this does not mean you cannot rent a space with the option to buy a year or two down the road.

In the meantime, you can finance the rest of the necessary equipment and inventory. Then, you can drive your pharmacy toward profitability. When the time comes, you’ll have all the proof and evidence you need to be ready to take on a larger loan. With the proper long-term business plan and approach to financing, you could be well on your way to owning your own pharmacy.

FAQs on loans for pharmacists

How much does it cost to open a pharmacy?

According to PioneerRx, it costs between $400,000 to $600,000 to open a pharmacy.

What kind of loans for pharmacists are available?

Pharmacists interested in starting their own businesses may have access to a wide range of financial products, depending on their personal financial situation and business experience. Some common financing options include term loans, SBA loans, business lines of credit, and inventory financing.

What documentation do you need to get a doctor loan for pharmacists?

To get approved for a loan, you’ll typically need to show your personal credit score, personal and business financial statements, as well as basic information about the borrower and business. To qualify for a loan for pharmacists, you will likely need to show your medical license and other state credentials.

What are cheap business loans for pharmacists?

Loan interest rates depend on your creditworthiness as a borrower. That said, if you can meet the rigid qualification requirements, SBA loans generally offer the lowest interest rates on small business loans.