Small Business Loans for Pharmacies: The Top Options

How to Get a Small Business Loan for a Pharmacy

Sure, we live in an age during which some big corporations own a large slice of the pharmacy space. Still, many customers prefer working with local operations instead, whether that’s due to more personalized service or simply better geographical convenience. If you’re a local druggist who is looking to expand, or maybe hoping to get into the business, you may be looking for a pharmacy business loan.

Just like medications, you’ll find that options for pharmacy financing come in a few different formats—but they all get the job done. We’ll discuss how to find the right small business loan for the pharmacy plan you have as well as the most common requirements among pharmacy business loans.

Loans for Financing Your Own Pharmacy vs. Buying a Pharmacy

As we began to mention, the kind of capital you’ll need to accomplish your dreams will vary based on what your goals are. For instance, you may need a real estate loan if you’re looking to purchase a building versus, say, a working capital loan if you’re looking to do many different things with your money.

Starting a Pharmacy

Startup capital isn’t always easy to get. We’ll go into details in the next section on basics about why it can be hard to meet all of the requirements involved in securing a pharmacy business loan. Because of that, you may need to be a bit flexible with the kind of capital you can access.

Generally, when starting a new business of any sort, you want to find a loan that enables you to use your financing in different ways. Along with the fixed-asset costs of real estate or fixtures, you’re bound to find that you have many different costs you’ll incur along the way.

Expanding a Pharmacy

Expanding an existing operation often means financing new types of inventory to serve a wider range of customers. Alternately, your expansion plans may include a larger footprint for an existing store or opening a new franchise location.

When you’re looking for expansion loans for a pharmacy, keep in mind the type of expenses you’ll have and decide whether you’re best searching for a working capital loan or directly financing a fixed asset.

Acquiring an Existing Pharmacy

Though the process of buying a business can be tricky, financing doesn’t necessarily have to be. You’ll have a few different options to look into for business acquisition loans. One thing you’ll want to ask yourself is whether you’ll be acquiring lots of fixed assets as part of the purchase, since that can potentially change the type of financing you want.

Basics for Pharmacy Business Loan Applications

The business and personal details you’ll need to provide for your pharmacy business loan will vary depending on your lender and the type of business financing for which you apply. That said, there are some general documents that most lenders will ask for as well as some things you should simply know about your business before you apply.

Pharmacy Business Loan Requirements from Lenders

Most lenders will require for the following:

  • Business documents, including your articles of incorporation or any other relevant licenses for operation in your municipality and industry
  • Bank statements from the last third or quarter of the year
  • Personal identification
  • Financial statements including cash flow forecasts, profit & loss, balance sheet, and more
  • Yearly revenue numbers

These are important facts for lenders because they help evaluate how responsible you are likely to be with their cash, how likely you are to repay it, and how much of a risk they see you as. The financial picture that these documents paint will determine how favorable—or unfavorable—your loan terms are.

Other Things to Know Before You Apply for a Pharmacy Loan

There are some additional things you should sort out on your end before you apply, too:

  • Your credit score
  • What you’ll be doing with the capital, including how much any purchases will cost you
  • How much you can realistically repay
  • Outstanding debts
  • What kind of collateral you are able to offer up

The answers to some of these questions may prohibit you from qualifying for certain types of loan products. But they could also give you an advantage in applying for others.

Small Business Loans for New Pharmacies

Let’s begin with entrepreneurs starting up. Finding startup loans can be tricky due to that list of lender requirements above; there’s a lot that lenders look for out of their candidates to mitigate risk. With that in mind, you’ll want to look at specific pharmacy business loans if you’re just kicking off things.

    SBA Microloan

    As a startup you won’t have the business credit history or the time-in-business requirements most lenders look for in qualified candidates.

    But you may be able to obtain an SBA microloan and use this capital to start your new pharmacy. Microloans, which are actually paid for and issued by nonprofit lenders and not the SBA themselves, can be awarded to qualified candidates in amounts up to $50,000. These smaller loans are issued for a repayment period of up to six years.

    Although traditional SBA loans (which we’ll talk about in a bit) are only awarded to candidates with a strong business history, SBA microloans differ. Strong microloan candidates have a very good credit and business plan, and are often awarded to candidates of color, women, and veterans by design.

    0% Introductory APR Business Credit Card

    You may be surprised to find a certain kind of business credit card very useful for beginning a new pharmacy business (especially if you don’t qualify or don’t have time to wait for an SBA microloan application to go through).

    In particular, a strong consideration should be a 0% introductory APR business credit card. These cards offer a fixed time (often longer than one year) for you to spend without any interest on the card. You can fund purchases and develop a plan to pay them off. You’ll want to consider setting up a payment plan before the introductory period ends and the standard APR (which is determined by your creditworthiness and the market Prime Rate) kicks in.

    Another benefit is a business card enables you to build credit, which is essential for accessing traditional loans down the line.

Small Business Loans for Pharmacy Expansion

Next, let’s look at pharmacy business loan options for those who are already in full swing. If you’re looking to potentially expand your business and you have a track record of solid revenues, you may open yourself up to other types of loans with more favorable terms and flexible uses.

    SBA 7(a) Loan

    Because of their favorable conditions—lower rates, high amounts, and long payback periods—SBA loans are often considered the best-of-the-best within business lending. Of course, since many candidates want these loans, you almost always must have a high credit score to get that coveted approval as a candidate.

    These loans are special because the Small Business Administration guarantees them to up to 85%, meaning that the institutions that offer these loans have lower risk when extending you capital. This is what makes it possible for lenders to give you preferred terms. In case you default and can’t repay, the U.S. government has the bank’s back.

    The SBA 7(a) loan is the most popular SBA loan program. This is an incredible working capital loan, which means you can spend the money on different expenditures for your pharmacy business as you like. Plus, these loans have repayment terms that extend several years, so you can take your time paying back the cash.

    Inventory Financing

    If growing your offerings or stocking the shelves in a new location will be your main spend, you can look into an inventory loan.

    Inventory financing is a debt-based loan product specifically used to buy inventory that your pharmacy will sell. This is what’s called a self-secured loan, since the products you buy with the proceeds will act as collateral to secure the loan you used to buy the goods.

    If you’re familiar with equipment loans, you’ll find this concept familiar. An inventory loan works much in the same way!

    Business Line of Credit

    If you’re stocking your shelves, you may want to consider a business line of credit—especially so you don’t have to put big purchases on a credit card.

    With a business line of credit, you get a credit line to spend on much like a business credit card, but the biggest difference is that apply through a lender for approval like a more traditional term loan. After that, you’ll have your credit line ready to “draw” from (in other words, spend against it). You only have to pay interest on what you use, unlike other traditional loans.

    Many businesses use lines of credit as a source of emergency capital, but don’t forget that you can use it as your main source of financing, too.

Small Business Loans for Pharmacy Acquisition

Buying an existing business? Maybe you’re acquiring a rival chain, or just starting out in the pharmacy business and you have decided to take over an existing location. Whatever your reason, you’ll likely be seeking specific types of financing to make this purchase happen.

    SBA Loan

    As we discussed earlier, SBA loans are excellent for this purpose. You can consider an SBA 7(a) loan, but you should also be aware of SBA 504/CDC loans, which enable you to purchase fixed assets. So, if you’re buying a building and its entire contents, you may be eligible to use SBA 504 financing on your purchase.

    Term Loans

    Not everyone will qualify for an SBA loan, but you do have an alternative with term loans. Even without a spotless credit history, you may still qualify for term loans. These are probably what you consider “traditional” business loans, and you can use them as flexible working capital.

    With a term loan, you receive a lump sum deposited into your business bank account after you gain approval from a lender.

    The majority of term loans for business require you to have a history of a couple of years’ time in business. But if you are already established and looking to expand your pharmacy business, a term loan could be a good fit. Another general benefit of term loans is that different lenders have varying repayment structures, which means you could find a lender willing to work with you if you are looking to make monthly payments instead of weekly payments.

Finding the Right Pharmacy Business Loan for You

Before you set out on your quest for capital, make sure you have a sense of what you can afford, what your plans are, and how quickly you need to get your hands on financing. The better you know your business, the more likely you are to find an option that’s right for you, and go through a process that’s seamless.

Founding Editor and VP at Fundera at Fundera

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. 

Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.

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