Buying your first pharmacy and arranging finance is not that different to buying your first house. They are both major purchases in your life and it pays to research and plan. Surrounding yourself with professionals will stack the odds in your favour for a profitable outcome that will set you up for success.
What is a bank looking for when financing your first pharmacy?
From a bank’s perspective, there are four things that influence a favourable outcome:
Affordability: The bank will assess a proposal to determine whether or not the purchaser can afford the related debt. This assessment will not only look at whether the performance of the pharmacy can sustain the debt, but also whether the applicant’s overall position in terms of personal commitments can continue to be met.
Security: Whilst the bank wants to see the debt repaid, it must assess the security or collateral it holds if the worst was to happen. Most pharmacy loans are secured solely by the business itself, as it is a saleable asset whose value is linked to its profitability. Real estate or cash security is also acceptable to a bank. Also, the type and amount of security offered may result in different pricing as the risk to the bank is different.
Equity: The bank will want to know what equity or deposit you intend to invest in the transaction. This can be done through a cash deposit or where you might already have additional security, by drawing equity against that asset/security. As a rough rule of thumb, most banks will lend you up to 80 per cent of a pharmacy valuation (excluding stock) and 80 per cent against real estate security.
Borrower/Guarantor Strength: Whilst the above items are very important, ultimately the success of a business is determined by the principals who own the business. The bank will want to understand your background and experience in the pharmacy industry and whether you have had management experience prior to purchasing. Additionally, the bank will want to understand how strong your personal position is in terms of assets and liabilities. A strong personal balance sheet is a good indicator of the applicant’s financial strength and credit history.
So what steps can you take to ensure your finance application is successful?
Here are a couple of tips that will assist in you in securing an approval:
- Research – find out early what specific lending requirements you are going to have to meet.
- Deposit/Equity – Ensure you know how much you are going to need as a deposit or other security, and have statements or documentation to show your lender how you have saved it or the source of your equity.
- Business Plan – A detailed business plan shows initiative that you have thought about how you are going to run your new business, and gives your lender confidence in you as a business owner. Failing to plan is planning to fail!
- Financial information – Your lender will want to understand what you have been earning and will generally ask for tax returns from the past two years.
- Deal with professionals – Pharmacy lending is specialised. Make sure the lender you are dealing with has pharmacy experience.
For more information on pharmacy lending, call Suncorp Bank Business Banking Manager Tanya Mehinagic on 0459 808 331 or tanya.mehinagic@suncorp.com.au
by Chris Britton – Executive Manager Business Banking Suncorp Bank Health