Pharmacy Financing Types Available in New Jersey

By Brad MacLiver
Authorship and profile at Google


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

SBA Financing for NJ 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 pharmacy franchises. These loans can provide funds for pharmacy franchise entry fees, real estate where the pharmacy in New Jersey will be located, property improvements, working capital, and pharmacy related equipment.

Borrowers for the New Jersey 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 in New Jersey. 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 ofr NJ Drug Stores

This is another SBA loan program that can be used for 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 New Jersey pharmacy loan process.

New Jersey pharmacy funding 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.

NJ Funding for Pharmacists Who Are Veterans

There are specific franchise loan programs available for honorably discharged veterans and these Vet programs can be considered for pharmacy franchise loans.

NJ Pharmacy Financing From the Franchisor

Financing a pharmacy franchisee is a usual topic in discussions with a pharmacy franchisor. Franchisors should be able to direct potential drug store franchisees toward funding programs that have previously been successful for their other New Jersey pharmacy franchisees. Preferred lenders will already be familiar with the pharmacy franchisor and their systems.

Pharmacy franchisors may also provide some funding internally. Lower collateral will be offset by higher interest rates. This may help with qualifying for a pharmacy acquisition of a franchise, but may hurt the franchisee’s long term cash flow. Due diligence of pharmacy franchisor funding should be completed before any final decisions are made.

Personal Assets Used in Pharmacy Finance

It is not the case that all prospective pharmacy franchise owners in New Jersey have enough readily available.  A portion of the drug store business financing may need the borrower to liquidate some personal stocks as well as provide personal assets as collateral.  They may also refinance their home or use their 401k to assist the lenders security to make the pharmacy business loan.

If the borrower still can't make the loan, a friend or family member may be required as a partner in the NJ pharmacy.  However, now that the pharmacy partner’s cash and assets are also at risk of loss, your partner may require some controlling interest in the pharmacy.

Retirement Accounts Used for New Jersey Pharmacy Finance

It is possible to self-direct Retirement Plans can use them to invest into a pharmacy franchise. Retirement plans can purchase stock in the pharmacy franchise similar to how they may currently 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 New Jersey crashes, so does the retirement fund. The method of providing less expensive financing for the NJ 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 interested in using this financing structure should research the Employee Retirement Income Security Act of 1974 (ERISA).

Pharmacy Franchise Agreement Buyout Funding

Understand that New Jersey 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 may only have the options of bankruptcy, or buying out the franchise agreement when allowable.

Buying out the franchisor allows the New Jersey pharmacy to remove the franchisor from the equation. This in turn allows the pharmacy owner 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 pharmacy industry in New Jersey. 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 NJ pharmacy owner is advised to use a pharmacy industry specialist to capitalize on the funding opportunities that are available.

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Pharmacy Sellers/Buyers: New Jersey Sale & Purchase Agreements

By Brad MacLiver
Authorship and profile at Google


A Pharmacy Listing Agreement is a contract that provides pharmacy brokers with the business seller’s permission to sell their New Jersey drug store. In the midst of the process of presenting the business being sold to qualified drug store buyers, there will be crucial negotiations and preliminary offers.

After preliminary stages have been negotiated, it will then be time to put the details of the potential pharmacy transaction forth in the form of a contract. This contract is traditionally called the Purchase and Sale Agreement, but it may also be referred to as a Pharmacy Asset Purchase Agreement, an Asset Purchase and Sale Agreement, Asset Purchase Agreement, or any other variation of these contract titles. Whatever the title is on the contract, this document should be considered the “blueprint” for transferring the pharmacy business to the new owner.  

The Pharmacy Purchase and Sale Agreement details how much the buyer agrees to pay and what assets the New Jersey seller is conveying to the buyer. When the agreement is put in writing and it describes the transaction in some detail then is accepted and signed by both parties, this contract is now a legally binding agreement. So, during the phase of negotiation, the Pharmacy Purchase and Sale Agreement should be developed with proper diligence.

Due to liability issues it is seldom that a pharmacy’s corporate stock will be purchased. Therefore, these transactions almost always are only asset purchases.

Elements of the Pharmacy Purchase and Sale Agreement include, but are not limited to: assets being purchase, assets being excluded, aspects of counting and purchasing the inventory, both electronic and hard copies of pharmacy customer files, liabilities, purchase price, closing date, transferring title of the assets being purchased, pharmacy customer file conversion, representations and warranties, non compete, restrictive covenants, transferring the phone, notifying customers, signs, Board of Pharmacy notification, accounts receivables, employment of business seller and pharmacy employees, confidentiality, counting the pharmacy’s inventory, costs associated with the closing, lien searches, actions to be taken before the date of closing, along with the pharmacy’s computers, office equipment, and any automated filling machines.

Although it covers many aspects of transferring the business assets from the New Jersey pharmacy seller to the new owner, it should be understood that the Purchase & Sale Agreement does not provide tax and legal guidance for the seller. Those issues do not pertain to the buyer of the assets. Therefore, the pharmacy seller should be well advised by a knowledgeable pharmacy broker, accountant, or attorney regarding tax consequences, restrictive covenants, the pharmacy valuation, and the structure of the deal. These aspects of the deal may not have any impact from the buyer’s point of view, but if not considered carefully may have affects to the seller’s financial position after the transaction is closed.

New Jersey pharmacy owners that are considering to sell their drug store will benefit when working with specialists who operate exclusively in the pharmacy industry.  They can provide expert guidance when bringing about transactions that provide the most benefits regarding the seller’s family and estate planning and tax consequences. A blueprint and proper planning that structures transactions appropriately will increase the net amount of money the seller in New Jersey receives for the pharmacy’s assets.

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