Financing Pharmacy Franchises in North Dakota

By Brad MacLiver

Authorship and profile at Google

A ND 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 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 in North Dakota. 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 and will be considered more risky.

Traditional Bank Financing used in funding a North Dakota 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. However, many of these banks decline the funding request once they review the loan documents because they don’t understand the security provided for the pharmacy loan. Community drug stores typically have very little traditional assets to offer as security. Lenders for pharmacy will use traditional methods for analyzing the cash flow available to service to the debt, and they will also need to understand the nontraditional collateral that will secure the loan.

As a borrower, even a buyer that has incorporated, the personal credit rating of an independent drug store owner is a factor, as well as their 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 North Dakota pharmacy business loan.

ND Pharmacy Franchise Funding Tips:

1. Because there are many pharmacy franchise financing options available, pharmacy owners in ND should perform proper due diligence then 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 to review the pharmacy business loan documents.

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

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

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North Dakota Pharmacy Funding Types Available

By Brad MacLiver

Authorship and profile at Google

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

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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