Financing Types Available in Alabama for Pharmacies

By Brad MacLiver
Authorship and profile at Google


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

SBA Financing for Pharmacy Business Loans in Alabama

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 in which the Alabama pharmacy will be set up, improvements to property, pharmacy-related equipment, and working capital.

All borrowers for the pharmacy franchise must be without any bankruptcies, creditworthy, and have an ample down payment.  There can be variations here, but regardless, the business must be able to repay any loans using the cash flow of the pharmacy.

Terms of loans can range from five to twenty years.  Within standards set by the SBA, interest rates can be fixed or adjustable.  They are negotiated by the lender and dependent on the financial condition of the pharmacy transaction.

There are SBA fees for guaranteeing Alabama pharmacy business loans. 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

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 Alabama pharmacy loan process.

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.

Funding for AL 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.

Pharmacy Financing From the Franchisor

Financing a pharmacy franchisee in Alabama is a usual topic in discussions with an AL pharmacy franchisor. Franchisors should be able to direct potential drug store franchisees toward funding programs that have previously been successful for their other 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 Alabama Pharmacy Finance

Not all prospective pharmacy franchise owners in Alabama have enough cash on hand. Part of the drug store business financing may require the borrower to liquidate personal stocks, provide personal assets as collateral, refinance their home, or use their 401k to assist the lenders security for making the pharmacy business loan.

If the borrower still does not have enough personal assets then a family member or a friend may be required as a partner in the Alabama pharmacy. Since the pharmacy partner’s cash and assets will also be at risk of loss, these partners may require some controlling interest in the drug store.

Retirement Accounts Used in Pharmacy Finance

Retirement Plans can be self-directed and used to invest into an Alabama pharmacy franchise. The retirement plan can purchase stock in the AL pharmacy franchise. This is similar to how the retirement plan currently may 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 crashes, so does the retirement fund. The method of providing less expensive financing for the pharmacy in Alabama 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 pharmacy situations in Alabama 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 Alabama 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 AL pharmacy industry. This lack of Alabama 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 pharmacy owner is advised to use a pharmacy industry specialist to capitalize on the funding opportunities that are available.

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Pharmacy Transactions and Capital Gains Tax for the State of Alabama

By Brad MacLiver
Authorship and profile at Google


How could a “Capital Asset” affect you, an Alabama pharmacy owner if you want to sell your pharmacy business; and what is a capital asset anyhow?

Start by only looking at your Alabama pharmacy and not any of your personal belongings, and now try and sell your pharmacy; what you will then have is your pharmacy business as a capital asset. Look now at the difference in the cost you paid for the pharmacy (the basis), and the sum the pharmacy sells for, be it profit or loss, and this is what is regarded by the United States government as either a capital gain or loss and has to be reported and may be taxed.

Capital gains can also be called investment income due to its relation to real assets, such as property, intangible assets such as charitable donations, and financial resources.

With the current economic dip, the capability to attain financing for a potential pharmacy business buyer is difficult, and the available cash will be in smaller amounts. Also, selling your pharmacy business for a profit may be lower due to the higher probability that you, the Alabama pharmacy owner, may have had to reduce your asking price to allow buyers the opportunity to obtain financing; and in the end you may pay a higher percentage of taxes.

How can you the owner of an Alabama Pharmacy combat these issues? Well there are good strategies to do just that, but first you the pharmacy owner should have a specialist that is an expert in the pharmacy business industry, with the tools and strategies required to assist your pharmacy business. Washburn & Associates are these specialists that know how selling your pharmacy for the greatest profit, with the least in taxes is the bottom line.

“Charitable Remainder Trust” or CRT is one tool that may be helpful with the capital gains tax burden. Now, Classifying a CRT; legally explained as “Split Interest Trust,” due to the mix of charitable donations and personal financial positions; CRT’s may decrease the tax liabilities, and increase your pharmacy’s finances while allowing for goodwill giving.

Goodwill donations are what create a Charitable Remainder Trust when you an Alabama pharmacy owner give from your own assets, such as real estate property, cash, and other such items, to this special type of Trust. This Trust is then put in place for a defined time period or until the your, (the donor’s) death; during this time you the pharmacy owner can receive income as well as buy life insurance, if desired, to provide for your designated heirs after you are gone; this would come from this Trust’s assets, and would be without state tax liability. CRT’s are there for use by financial specialists in the pharmacy business industry, like Washburn & Associates, to increase the your pharmacy’s assets and charitable donations by understanding the federal government’s intricate and stringent tax laws written in the Internal Revenue Code 644, that denote how and when a CRT can be set up.

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