Pharmacy Franchise Financing in Utah

By Brad MacLiver
Authorship and profile at Google


A UT pharmacy franchise is a contractual relationship between two parties. One, the Pharmacy Franchisor is the party that developed their drug store business model, branded the pharmacy related products, and produced the system the pharmacy franchisees will operate under. The second party, the Utah Pharmacy Franchisee, purchases a franchise license from the Pharmacy Franchisor, and usually pays an ongoing pharmacy franchise fee, or royalty fees, to use the name, products, systems, trade secrets, etc., created by the Pharmacy Franchisor.

There are a number of options for financing a pharmacy franchise business. All pharmacy franchise funding sources, for drug stores, prefer lending to a pharmacy franchisee who will be working with a nationally recognized name and long track records. Newer pharmacy franchise models won’t possess these two traits, will be considered more risky, and won't have the track record for the required certified portfolio asset pharmacy valuation.

Traditional Bank Financing used in funding a Utah pharmacy franchise is available when a pharmacy franchise has the track record and pharmacy name recognition. Many of the banks will show interest in this type of funding opportunity. Unfortunately once the bank reviews the loan documents, many of these banks decline the funding request because they don’t understand the security provided for the pharmacy loan. Community drug stores will typically have very little traditional assets to use as security. Pharmacy lenders will use traditional cash flow analysis methods in order to service to the debt, but they must also understand how nontraditional collateral works in order to secure the loan.

Even when incorporated, borrowers must take the independent drug store owner’s personal credit rating into account. In addition, they should consider personal tax returns and financial statements. The amount of actual cash on hand and the verification of the source of the down payment will be critical factor in qualifying for a pharmacy business loan in Utah.

UT Pharmacy Franchise Funding Tips:

1. There are a wide variety of pharmacy franchise financing options available, so pharmacy owners should perform proper due diligence in order to obtain the pharmacy funding that best suits their situation.

2. It is advisable to have an accountant or attorney that is familiar with pharmacy franchise financing in Utah to review the pharmacy business loan documents.

3. There are pharmacy consulting services and franchise associations who can help guide a prospective pharmacy franchisee or borrower or a drug store loan.

4. New Utah pharmacy owners need to make sure their funding request is enough to get the pharmacy running and profitable. Less than ample funding for the initial stages may put the drug store in a position of needing additional funding. Smaller working capital loans that would be in a subordinated position will be more difficult to obtain at a later date.

When Utah pharmacy owners have questions and need information regarding pharmacy franchise business loans, or any types of funding for community drug stores and pharmacies, they should contact a pharmacy industry specialist in UT who can provide quality answers and sound advice.

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Financing Types Available for Utah Pharmacies

By Brad MacLiver
Authorship and profile at Google


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

SBA Financing for Pharmacy Business Loans

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 Utah pharmacy franchise entry fees, real estate where the pharmacy will be located, property improvements, working capital, and pharmacy related equipment.

Borrowers for the pharmacy franchise in UT 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 Utah pharmacy financing.

Patriot Express Business Loan Program

This is another SBA loan program that can be used for 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 in Utah 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 Pharmacists Who Are Veterans in UT

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

Utah 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 Utah 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 Utah 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 Pharmacy Finance

Retirement Plans can be self-directed and used to invest into a Utah 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 Utah 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. Utah pharmacists and investors interested in using this financing structure should research the Employee Retirement Income Security Act of 1974 (ERISA).

Pharmacy Franchise Agreement Buyout Funding

Understand that pharmacy situations in UT are changing, economic factors are a concern, mail order pharmacy is growing, and market shares are shifting. These variables can have a negative impact on cash flow of a pharmacy franchises, so there's a chance that drug store owners paying franchise royalty payments may not survive tightening profit ratios.  These pharmacy franchises may be forced to resort to bankruptcy.  Alternatively, they could buy out the franchise agreement when possible.

Buying out the franchisor is an option which allows the pharmacy to take the franchisor out of the equation. This will in turn allow the Utah pharmacy owner more flexibility with their business decisions. The pharmacy franchisor will have sold the drug store franchise with the expectation that the cash flow from their pharmacy franchisees will earn income.  Because of their long term goals, Franchisors may be hesitant to allow a pharmacy franchisee to remove itself from the franchisor. However, if a Franchise Agreement Buyout can be negotiated, the buy-out transaction can also be financed.

Unfortunately many banks don’t understand the dynamics of the pharmacy industry. This lack of pharmacy knowledge results in the banks looking at the funding request and all they see is a business that has very little collateral compared to amount of financing the pharmacy is requesting. To assist the successful funding process a pharmacy owner in Utah is advised to use a pharmacy industry specialist to capitalize on the funding opportunities that are available.

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Pharmacy Industry: Current Market Conditions in Utah

By Brad MacLiver
Authorship and profile at Google


Currently there are a number of factors that are impacting the current market conditions of the U.S. pharmacy industry in Utah (UT). These factors are affecting the pharmacy business valuations of pharmacies, Utah drug stores, and pharmacies all across the U.S.

Local demographics:

The valuation process includes local market conditions and local demographics. Smaller communities have less growth potential and with the declining profits a buyer will need to purchase at a lower value because they will have to service the debt from a business loan and still try to make a living. The same is true for communities that have lost population due to economic conditions, or have a high rate of unemployment. Fewer people, or fewer customers with the ability to purchase, will mean fewer sales and less chance of any substantial improvement in the near term. This results is a lower pharmacy business value for your UT drug store.

Utah Pharmacists Shortage:

Pharmacies in Utah and across the country have had difficulties in finding pharmacists.  This shortage of pharmacists not only affects employee opportunities it also affects the number of potential independent buyers. 

Fewer Buyers:

There are also fewer corporate buyers. Some of the largest pharmacy chains have been purchased and consolidated in the Utah pharmacy industry roll up. Many smaller chains have run into financial difficulties and have stopped their expansion or themselves have been acquired by the larger chains. It is more difficult to drive a business price higher when there are fewer willing, or capable, to purchase the pharmacy.

Current Market Conditions Requires Industry Roll-up:

The consolidation of the pharmacy industry is required to get more traffic into a single store.  Due to simple economics, when any business has a reduction in profits they are less attractive to a buyer and Utah pharmacy business values drop. There are many factors contributing to the downward pressure of pharmacy values and there is not any expectation of a turn around.  Pharmacy owners should not be tricked by inexperienced brokers that are claiming grand outcomes with overstated pharmacy business values not grounded on realistic market conditions.

With the consolidation of the pharmacy industry that has been happening for several years, many new brokers have entered the market to broker pharmacy acquisitions. Most brokers do not have pharmacy related experience, nor do they use current market conditions when they value a pharmacy. Most are using simple accounting formulas that hold no sound reasoning for the value when faced with current pharmacy market conditions. Due to this many brokers are valuing Utah pharmacies 2 to 3 times more than what the market is really willing to pay. Any inexperienced person can quote a high value to capture a listing. So beware... an over inflated asking price is NOT what the business will actually sell for.

Mail Order:

Some insurance companies are classifying a noticeable amount of pharmacy patients as “long-term” and these patients are required to only purchase their medications from mail order pharmacy companies who provide products at lower prices. The result of this in local Utah pharmacies is that they are not only missing out on prescription sales, but front-end sales will also decline because customers are not entering the store. Pharmacy mail order sales have currently surpassed the sales from independent retail pharmacies.

Choose a firm that provides Utah pharmacy business valuations based on real market conditions and does not use a simple formula for calculating the value of a pharmacy. Complex methods are necessary to accurately derive the value of a pharmacy.

It is best to use a company that specializes in pharmacy and has extensive and current industry data. Choose a pharmacy specialists who has been working in the pharmacy industry long enough to have extensive pharmacy experience and an excellent reputation. A company with good credentials possesses large amounts of national data and it is this data that can support the valuation's conclusions.

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When you are considering buying, selling, or financing a pharmacy business, discover more topics and find the tips and resources you need to make a decision at www.BuyingAndSellingPharmacies.com.
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