North Dakota Pharmacy Acquisitions and Bridge Loans

By Brad MacLiver

Authorship and profile at Google

With the changes in the ND pharmacy industry independent drug store owners, small and regional pharmacy chains, and pharmacy equity investment groups are acquiring pharmacies in North Dakota to obtain a larger competitive footprint in a geographic area. During the acquisition phase of the business expansion there may be opportunities that require action, which is faster than the traditional funding process.
                     
Bridge Loans are a short-term financing option and are used while waiting for permanent financing, or the next stage of financing to be obtained. Bridge loans provide funding to "bridge" the gap between a company’s current needs and their long term financing requirements.  Permanent financing is generally used to "take out," or pay back, the bridge loan.

One of the characteristics of a bridge loan is that they can close quickly, which in turn allows a company to capitalize on a timely business opportunity, or acquisition. The quick access to money can also allow a business the chance to avoid penalties, bankruptcy, or other temporary problems. If longer term issues need to be dealt with, this “transitional financing” provides the company time until longer term financing can be secured.

Another characteristic of bridge loans is that the process usually requires less documentation than conventional financing. Bridge loan lenders don’t usually have the same government regulations to adhere to, so they tend to have more flexibility in their lending criteria and the documentation they require. However, less documentation does not mean they won’t perform due diligence to have a comfort level with the transaction before they fund.

Examples of using Bridge Loans in North Dakota Pharmacy Transactions:

1. An independent pharmacy owner in North Dakota learns of health issues and decides to quickly sell the family owned pharmacy to an employee or local competitor. Using traditional financing methods for the pharmacy buyer would require more time than is acceptable when considering the circumstances, so a bridge loan should be used to quickly accomplish the transaction.

2. A small ND pharmacy chain needs $1 million to expand their business. This chain has 3 new equity investors who will each invest in the firm over the next 6 months. However, they are investing at different intervals, and the business has opportunities which require action sooner than 6 months. The quick closing bridge loan allows the ND pharmacy chain access to the needed funds so they can complete their expansion and increase profits. Money gained from the 3 new equity investors will pay off the bridge loan.

3. A North Dakota pharmacy owner in a leased location has an opportunity to quickly acquire a commercial property that would be a great pharmacy location, but the property is in a state of disrepair. A bridge loan provides the requiring funding to acquire and rehabilitate the property. Once that is complete, conventional long term financing can be obtained.

4. A pharmacy group developing new pharmacy locations in North Dakota is able to receive bridge loan funding to get through the permitting process of a project when conventional financing isn’t available at this early stage due to there is still too much risk. By taking out a bridge loan, the project is allowed to move into the construction phase and then qualify for other forms of financing.

5. When a North Dakota pharmacy is owned by two or more partners and one of the partners is ready to exit the business, bridge loans can be used to help ensure the cash flow and uninterrupted operation of the business during the partner buyout.

6. Both real estate and equipment bought at auction can have a narrow window for closing the deal.  Timing of traditional financing would keep the buyer from proceeding with the opportunity, while the benefits of a bridge loan will permit the pharmacy owner to quickly respond to the opportunity.

When there are business opportunities, buying North Dakota pharmacies, selling ND pharmacies, quick deadlines, an old loan maturing before a new loan can be put in place, funding needs during the permit, planning, or evaluating stages, etc., bridge loans can be an essential financial tool.

Tips regarding ND pharmacy bridge loans:                        

1. Bridge loans are quick to obtain, but quick to expire.

2. A bridge loan is like a hard money loan and the terms are often used interchangeably in conversations. Both are short-term, higher interest rate, non-standard loans, but in some circles hard money refers to the lending source and a bridge loan refers to the duration of the loan.

3. Because bridge loans usually come with higher interest rates than traditional financing a larger down payment, meaning a lower Loan to Value (LTV) and a lower level of risk and provides an opportunity for lower interest rates.

4. With the shorter time period of bridge loans borrowers will need to be aware that fees for valuations, legal, dues diligence, etc., will be amortized over a shorter period than traditional financing transactions.

Understand the types of deals that require a bridge loan may be considered speculative in nature, or have higher risk factors. Due to this many banks do not offer bridge loans. Banks must meet government regulations and need to justify their lending practices. Riskier bridge loans do not usually fall within the lending parameters of many banks. Therefore a majority of the bridge loans will come from private investment firms.  It is best to consult a company that has access to a number of funding sources who provide bridge loans.

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