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I need a loan for my pharmacy business. What makes a good application?

Your idea of a good pharmacy finance application and what actually cuts the mustard might not be the same thing. David Ward gives his top tips for success

It is often perceived that obtaining a loan for a pharmacy business is easy. Pharmacies are a 'green light' sector so banks will easily part with their money, won’t they?

Well, that’s the big question.

It’s important to start by finding the right lender. You see, the first bank manager you meet might not be the best person to talk to about your requirements.

In fact, more likely than not, they might not even be the best lender for you.

Read more: Young pharmacist acquires first community pharmacy aged 27

With every pharmacy finance application we handle, every scenario is different and so are everyone’s requirements.

So, it’s important to think about who the best lender is to look after your particular needs and who might be the most suitable manager at that particular lender.

With that in mind, consider:

  • Do they actually lend to pharmacies? A lot of lenders don’t.

  • Do the bank or manager really understand the pharmacy sector?

  • Are they backwards-looking and only interested in historic accounts as opposed to what you can actually deliver?

  • Can they match your ambitions? Will the relationship work if you want to grow rapidly but they want you to grow slowly?

  • Can they fund a £2 million leasehold pharmacy as well as £200,000 for a robot, £60,000 for a refit, £80,000 for stock and £100,000 for your tax bill?

  • Will they say yes, in principle and then spend three months struggling to get a positive response from the credit underwriter?

  • Are they offering you the best terms in the market? 

Read more: High-dispensing Lincolnshire pharmacy sold in group deal

Once you’ve found a suitable bank manager, you’ll provide all the information they require. Then it’s out of your hands and into theirs.

Once they have written their credit paper, it will go over to an underwriter who will form an assessment based on the information in front of them.

They have their lending policy, but underwriting is a combination of science and art.

They will essentially need to work out whether they are happy to invest up to four times more than you in your business. They'll also consider whether their money is safe in your hands.

These are some of the answers you might get back:

  • No – due to lack of experience.

  • No – due to lack of profitability in the business.

  • Yes – but not for as much money as you want or need due to a combination of the factors above.

  • Yes – but only for enough money to fund one or two of the three pharmacies that you want to buy.

  • Yes – but at a higher rate than previously quoted.

  • Yes – all good.

We all want the last answer but, even then, you need to consider whether your lender is giving you the best deal on the market.

Read more: First-time buyer snags ex-Roshban pharmacy for ‘well in excess of guide price’

That level of growth can be completely alien to some bankers and it’s in their nature to be cautious.

Imagine it as a Dragons’ Den scenario.

You know what you want. You are experts in your field and know that you will make a huge success of the business once you get the investment that you require for that robot or with those additional branches.

The Dragons are sitting there with their piles of cash staring at you, and you just need to wow them.

However, they start to ask some awkward questions and query some of your figures:

  • "You say that you’re going to increase the items by 20%, but you haven’t said how."

  • "You’ve said that a robot will vastly improve your efficiency, but what knock-on benefit will that have?"

  • "You say that you only need to take £30,000 out of the business, but you took out £100,000 last year."

  • "I can’t see how the business(es) can afford to pay the loan back if you don’t reach your sales targets and what if interest rates rise again?"

Putting together a robust application that answers the tricky questions and limits the opportunities for the underwriters to say no is a skill.

There is a lot of future profit and growth on the line – give yourself the best chance you can to ensure that you can attain it.

Read more: Kensington pharmacy sold to small independent multiple-operator

Some key things to consider when pulling together your application: 

  • Research the target pharmacy and area.

  • Put a business plan together.

  • Prepare a set of forecasts.

  • Ensure accounts are up to date.

Read more: First time buyers bag two West Cumbria pharmacies for undisclosed price 


David Ward is senior director & head of pharmacy at Christie Finance

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