Available Idaho Pharmacy Financing Types

By Brad MacLiver
Authorship and profile at Google


There are a number of different options available for funding Idaho pharmacy franchises, specialty pharmacies, and traditional community drug stores.

SBA Financing for Pharmacy Business Loans in Idaho

The U.S. Small Business Administration (SBA) partially guarantees loans for pharmacy franchise lenders reducing the risk exposure for the lender. A loan program called 7(a) is a standard for funding pharmacy franchises. These loans can provide funds for pharmacy franchise entry fees, real estate where the pharmacy will be located, property improvements, working capital, and pharmacy related equipment.

Borrowers for the Idaho pharmacy franchise must be creditworthy, without any bankruptcies, have ample down payment, but there are variations here, and the business must be able to repay the loan from the cash flow of the pharmacy.

Terms can range from 5 to 20 years. Within SBA standards interest rates may be adjustable or fixed and will be negotiated by the lender dependent on the financial strength of the pharmacy transaction.

There are SBA fees for guaranteeing pharmacy business loans. These fees, which are paid to the government and not kept by the bank, can be rolled into the pharmacy financing.

Patriot Express Business Loan Program

This is another SBA loan program that can be used for ID pharmacy franchise business loans and is reserved for military veterans, active service members, their spouses, and survivors. The Department of Veterans Affairs would be involved in the pharmacy loan process.

Pharmacy funding from the Patriot Express program can furnish relatively fast approval times, may accept a smaller down payment from the borrower than traditional business loans, and lower credit scores may also be accepted. Patriot Express business loans provide opportunities for lower interest rate pharmacy business loans.

Funding for Idaho Pharmacists Who Are Veterans

There are specific franchise loan programs available for honorably discharged veterans and these Vet programs can be considered for pharmacy franchise loans.

Pharmacy Financing From the Franchisor

Financing a pharmacy franchisee is a usual topic in discussions with a pharmacy franchisor. Franchisors should be able to direct potential drug store franchisees toward funding programs that have previously been successful for their other pharmacy franchisees. Preferred lenders will already be familiar with the pharmacy franchisor and their systems.

Pharmacy franchisors may also provide some funding internally. Lower collateral will be offset by higher interest rates. This may help with qualifying for a pharmacy acquisition of a franchise, but may hurt the franchisee’s long term cash flow. Due diligence of pharmacy franchisor funding should be completed before any final decisions are made.

Personal Assets Used in Pharmacy Finance

Not all prospective pharmacy franchise owners in Idaho have enough cash on hand. Part of the drug store business financing may require the borrower to liquidate personal stocks, provide personal assets as collateral, refinance their home, or use their 401k to assist the lenders security for making the pharmacy business loan.

If the borrower still does not have enough personal assets then a family member or a friend may be required as a partner in the pharmacy. Since the pharmacy partner’s cash and assets will also be at risk of loss, these partners may require some controlling interest in the drug store.

Retirement Accounts Used in Idaho Pharmacy Finance

Retirement Plans can be self-directed and used to invest into a pharmacy franchise. The retirement plan can purchase stock in the pharmacy franchise. This is similar to how the retirement plan currently may be investing in publicly traded stocks and mutual funds. Lower debt service and higher profit potential may result when incorporating this option that uses less external financing in funding the franchise.

The downside is, if the pharmacy crashes, so does the retirement fund. The method of providing less expensive financing for the pharmacy needs to be weighed against the risk of failure.

Because of the factors involved such as deferred taxes, early or improper distributions, and IRS involvement, funding a pharmacy transaction with a retirement account should be handled by a company who has expertise in this arena. Pharmacists and investors interested in using this financing structure should research the Employee Retirement Income Security Act of 1974 (ERISA).

Idaho Pharmacy Franchise Agreement Buyout Funding

You must understand that the pharmacy situation is changing. Economic factors are an issue, mail order pharmacies are growing, and the market shares are shifting. All of these factors can have a negative impact on the cash flow of pharmacy franchises. Drug store owners paying franchise royalty payments may not survive the tightening profit ratios. Because of to this, these ID pharmacy franchises might only have the options of choosing bankruptcy or buying out the franchise agreement when allowable.

Buying out the franchisor will allow the Idaho pharmacy to remove the franchisor from the equation. This in turn will allow the ID pharmacy owner additional flexibility in their business decisions. The pharmacy franchisor then sells the drug store franchise with the expectation of earning income from the cash flow of their pharmacy franchisees. Because of their long term plan, Franchisors may be unwilling to allow the pharmacy franchisee to remove themselves from the franchisor. However, if it is possible to negotiate a Franchise Agreement Buyout agreement, the buy-out transaction is also financeable.

It is unfortunate that many banks don’t understand the dynamics of the pharmacy industry in Idaho. This lack of industry knowledge results in the banks viewing funding requests and seeing nothing but a business that has very little collateral compared to amount of financing the pharmacy requests. In order to assist the successful funding process, pharmacy owners are advised to use a pharmacy industry specialist to capitalize on any funding opportunities that are available.

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Acceleration Clauses in Idaho Pharmacy Business Loans and Commercial Leases

By Brad MacLiver
Authorship and profile at Google


A provision of many ID pharmacy business loans and commercial leases is an acceleration clause. The acceleration clause in the loan/lease agreements allows the lender to accelerate their collection of payments contingent on an event occurring. These events may include lack of payment by the borrower, failure to keep the property adequately insured, failing to pay tax assessments, not maintaining the property, selling the property/asset, etc.
                  
Lenders view the acceleration clause as an important tool in their business loan and commercial lease programs. Loan and lease documents might not specifically address the foreclosure of a property, or repossession of an asset, but this is where the acceleration clause comes into effect. Without the clause the lender would only be able to foreclose on one missed payment at a time. With the acceleration clause, despite whatever event kicks the clause into gear, the lender can demand immediate and full payment of all remaining balances and fees.

The Idaho pharmacy business loan or lease documents provided to the independent drug store owner will describe the rights, conditions, and obligations relevant to the acceleration clause. In the event that pharmacy owner in Idaho (the borrower) cannot meet their obligations, the loan or lease goes into default. A default can be caused by a payment that is even one day late, which means commercial and pharmacy business loans lease documents should be read and thoroughly understood before signing.

Tips Regarding Acceleration Clauses: 1. If slowing cash flow of a pharmacy is going to cause a business loan default but the Idaho pharmacy owner has additional unencumbered assets, they might be able to negotiate with the lender by offering additional collateral.

2. If its possible for the ID pharmacy to catch up on their payments, they can reinstate the business loan before the acceleration starts.

3. Different states have different rules requiring notification of an acceleration clause being exercised. Pharmacy owners should be aware of the laws in their state where they operate because lack of knowledge is not an excuse.
                                 
4. When an acceleration clause is exercised on a commercial lease, there is the possibility the landlord cannot collect rent from both the defaulting tenant and a new tenant at the same time. To save themselves some money, Idaho pharmacy owners should help the process by assisting the landlord re-lease the property. However, please note, should the ID pharmacy be in the process of being sold and the files and inventory moved to a competitor’s location, the pharmacy buyer will require restrictions in the Purchase and Sale Agreement  that the new tenant cannot be another pharmacy.

5. Lenders prefer not to have to go through the foreclosure process, so if your ID pharmacy is headed in that direction start talking with the lender about finding a solution. Communication with the lender is a good thing.

6. Some pharmacy business loans and commercial leases require a “personal” guarantee from the business owner. This means that the business owner’s personal assets and credit will become involved in the event of a default. The “corporate” status of the business will not keep the lender from seizing the personal assets.

When considering financing a pharmacy in ID for acquisition, or expansion, due diligence and understanding of all aspects of the transaction should be considered. Using the services of a pharmacy industry expert to guide a pharmacy owner through the maze of details will benefit the Idaho pharmacy owner in making the best business decision.

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