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Finding financing to start up, acquire or expand an independent pharmacy can present unique challenges. Pharmacies may have higher initial costs than many other small businesses, and once you’re up and running, you’ll have to closely manage your cash flow to bridge the gap between wholesale prescription purchases and insurance reimbursements. But challenging doesn’t mean impossible, and the right lender can help your business thrive.

Compare financing options and lenders

As you look to finance your pharmacy, you should compare different types of financing. Although conventional loans are sometimes a good fit, many business owners find that a loan backed by the U.S. Small Business Administration (SBA) is a better option. The popular SBA 7(a) loan program offers large loan limits, longer amortization and flexible terms. Additionally, SBA 7(a) loans can be secured by a business’s cash flow rather than hard assets, which is critical for pharmacy financing.

Choosing the right lender is also an important decision. Local banks will often know the area, and some may have experience in SBA lending. However, if you’re looking for an SBA loan, ask the lender about their depth of experience with SBA programs and if they’re an SBA Preferred Lender.

Many local banks only complete a handful of SBA loans each year, which may result in delays as they prepare your application or wait for the SBA’s approval. You could even find yourself working with them for weeks or months only to find out your application was denied.

It may be best to look for a lender with SBA Preferred Lender status as well as experience financing independent pharmacies. You can then benefit from their experience with SBA loan programs, knowledge of the intricacies of the pharmacy business and the advice they can offer based on what’s worked well for other pharmacists.

Find a lender that takes a holistic approach when reviewing your application

Many lenders start with some basic criteria when determining whether you’ll qualify for a loan, the amount you can borrow and the rates you’ll receive:

  • Your personal credit score
  • Personal resources/liquidity
  • Your experience working in or running a pharmacy
  • Your experience as a business owner
  • The pharmacy’s projected cash flow

When evaluating these criteria, many lenders have strict requirements, such as a certain credit score or years in business. However, there are lenders that take a more holistic approach to reviewing applications and are open to considering several variables.

At Byline Bank, we draw on our experience with independent pharmacy owners and leverage our expertise as a top five SBA lender nationally. Rather than using specific parameters, we look at the entirety of your industry experience, business experience, loan application and the prospective pharmacy to determine your loan eligibility and offer.

Start preparing early on

Here are a few steps you can take to get ready for the loan application process.

  • Identify a pharmacy to acquire: Many successful pharmacies begin as an acquisition of an existing pharmacy. You’ll want to do your homework and understand the financials of the business you’re acquiring and the projected cash flow you can expect for collateral.
  • Find a location: Unless you’re looking to acquire an existing pharmacy, you’ll want to find a location for your storefront. Don’t sign a lease yet—that generally comes after you secure the financing. However, having a specific location in mind can be helpful when you’re presenting your idea to a lender.
  • Check your credit: There are many apps and financial accounts that offer free credit scores and score monitoring. If you don’t have a good or excellent score, you may want to focus on improving your credit before applying.
  • Create a budget: You’ll also want to have a budget for the initial start-up and operating costs, including the initial purchase, construction or renovation, inventory, equipment, furniture, insurance, software, payroll and other necessary costs.
  • Have a business plan ready: A business plan will be important for showing the lender that you’ve thought through what it will take to make your pharmacy successful. You can use it to share your background, a marketing plan, why you picked the specific location and your financial projections for the coming years.

The type of purchase may also affect what the lender requests. For example, if you’re opening your first pharmacy, your personal liquidity and assets may be important. However, if you’re acquiring an existing pharmacy, then your purchase price, the pharmacy’s cash flow and the loan’s terms may be more important.

Frequently asked questions about financing a pharmacy

What down payment do you need to finance a new pharmacy?

Typically, you can expect to put at least 10% down when taking out a loan to build or purchase an independent pharmacy. However, the down payment requirement can depend on the type of loan and the lender.

What are typical terms for an independent pharmacy loan?

Many independent pharmacy loans are SBA 7(a) loans. You might be able to borrow up to $5 million with a repayment term of up to 10 years for most uses and up to 25 years for real estate. Non-real estate SBA 7(a) loans have no prepayment penalty and no balloon payments.

Should you get financing before or after signing a lease?

Generally, you want to identify a location for your storefront or an existing independent pharmacy that’s for sale first. However, don’t sign a lease or purchase agreement until after you’ve secured the financing.

How Byline Bank supports independent pharmacy owners

Byline Bank can be a great partner if you’re looking to finance the construction, expansion or purchase of an independent pharmacy. We understand the unique cash flow needs that you’ll face and what it takes to make a pharmacy successful.

In fact, we’re one of the few lenders that works with entrepreneurs looking for start-up financing for an independent pharmacy. By taking a comprehensive approach to evaluating applications, we can provide guidance on the information needed for a successful submission.

We offer term loans and lines of credit to help get your pharmacy started and running smoothly, and we know how to efficiently get through the SBA application and funding process. Our SBA Preferred Lender status allows us to make credit decisions in-house, for a quicker, more streamlined process.

As a top 5 SBA lender nationally, our lending specialists understand the pharmacy business and have the authority to make credit decisions in-house, for a quicker, more streamlined approach to getting your business the financing it needs. Get in touch.