Oklahoma Pharmacy Financing Tips

By Brad MacLiver
Authorship and profile at Google


There are a number of different options available for funding OK 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 Oklahoma 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 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 Oklahoma 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 Oklahoma 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 OK

There are a few specific franchise loan programs that are available for honorably discharged veterans. These programs for Vets are considerable for pharmacy franchise loans.

Pharmacy Financing From the Franchisor

Finding the financing for a pharmacy franchisee is a usual topic in discussions with pharmacy franchisors in Oklahoma. Franchisors have the capability to direct potential drug store franchisees towards funding programs that have been successful for their other pharmacy franchisees previously. Preferred lenders should already be familiar with the pharmacy franchisor and the systems used.

Pharmacy franchisors could provide some funding internally as well. Higher interest rates will offset lower collateral, which may help with qualifications for an Oklahoma pharmacy acquisition of a franchise. However, this could possibly hurt the franchisee’s cash flow in the long term.  Due diligence of pharmacy franchisor funding should be completed before making any final decisions.

Personal Assets Used in Pharmacy Finance

Not every prospective pharmacy franchise owner in OK will have enough cash readily on hand. Some of the drug store business financing could require the borrower to liquidate some personal stocks, provide some personal assets as collateral, refinance their home, or use their 401k in order to assist lenders security to make 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 Oklahoma 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 in Oklahoma 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 in Oklahoma 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 are changing, economic factors are a concern, mail order pharmacy is growing, and market shares are shifting. All of these can have a negative impact on the cash flow of a pharmacy franchise. Drug store owners paying franchise royalty payments may not survive the tightening profit ratios. Due to this, these pharmacy franchises in Oklahoma may only have the options of bankruptcy, or buying out the franchise agreement when allowable.

Buying out the franchisor allows the pharmacy to remove the franchisor from the equation. This in turn allows the pharmacy owner in OK more flexibility in their business decisions. The pharmacy franchisor sold the drug store franchise with expectations of earning income from the cash flow their pharmacy franchisees. Due to their long term plan, Franchisors may not be willing to allow the 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 Oklahoma 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 is advised to use a pharmacy industry specialist to capitalize on the funding opportunities that are available.

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If you are a pharmacy owner and are thinking of either selling your pharmacy, or expanding your market share, there are a number of financing solutions available to you. Learn more at www.BuyingAndSellingPharmacies.com.

You can also receive a free pharmacy business valuation at www.PharmacyValuations.com.

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