Here at PDS, we have many incredible solutions partners that have the ability to revolutionize pharmacies through their products and services. We’re so excited to share with you one of them — First Financial Bank. Read on for their guest blog post below about refinancing your pharmacy debt. Enjoy!
Cash flow is critical to any small business, and the world of independent pharmacy is no exception. In today’s environment, a rising number of business owners are acquiring debt with unreasonable repayment terms. In this case, refinancing may be a viable option for business owners. When looking at a potential refinance, you need to evaluate your existingdebt and analyze the repayment requirements to see if this option contributes to improving your business’ overall financial health.
There are many different types of debt in addition to traditional bank loans and lines of credit. Those include owner financing, Small Business Administration (SBA) or conventional loans, wholesale debt, business credit cards, and merchant cash advances that require daily payments. An independent pharmacy owner may have one or any combination of these debts. Refinancing can potentially reduce loan payments, extend the term of the debt, consolidate multiple loans into one lower payment, and improve working capital. Additionally, paying off creditors enhances the business reputation of the pharmacy, reduces the possibility of litigation, and helps re-establish solid relationships between the pharmacy and key suppliers.
If you are considering refinancing; you will want to ask yourself several questions before deciding to refinance.
- What is your current interest rate?
- Does your loan have a balloon payment coming due?
- Are there prepayment penalties on the current debt?
- Do you have stacked debt (multiple loans: bank loans, credit cards, etc.)?
- Do you have a good credit score?
- Does the pharmacy have prepared financial statements?
- Will the pharmacy’s cash flow support the refinanced loan?
- What is the cost of refinancing?
- Do you have the patience to deal with the paperwork involved?
- Will this improve your cash flow?
- Is the Small Business Administration (SBA) a viable option?
Interest rates are at historically low levels, even with the recent increases. If the business owner has stacked debt or higher interest rate loans in place, a reduction in your interest rate could significantly improve cash flow.
A credit score is also something to consider in the refinance process. A score of 680 or higher is usually preferred by lenders. The pharmacy also needs to have credible financial statements that show that the refinanced debt can be supported by the pharmacy’s current cash flow after removing the old loan payments.
Owners should also examine the cost of the refinancing. Loan fees, appraisals, title work, and other costs associated with refinancing range from 3% to 6% of the loan amount. However, these fees can be included in the loan and paid over the term of the note. Typically there is no equity injection, also known as a down payment, required for refinancing debt.
The SBA is a viable option for refinancing business debt for independent and community pharmacies. Because of the complexity of the SBA loan, choosing a lender with a dedicated SBA division and expertise in the pharmacy segment is highly preferred.
Refinancing your current debt to improve cash flow may be a useful option for independent pharmacy owners to free up cash flow. If you think this could be an option for you, find a knowledgeable lender that specializes in Independent Pharmacy Financing to answer all of your questions.