This is a great question and one that many clients have when considering their first pharmacy purchase.
Given the average purchase price for a metropolitan pharmacy is well over $1 million dollars in most cases, potential buyers will have a need for lending finance to complete the purchase.
However, up until this point most client’s exposure to lending has been limited to possibly a credit card or at best a home loan.
Pharmacy lending is particularly different to other traditionally forms of lending and it is important for new buyers to have an understanding of this area.
Firstly, unlike a house or commercial property which is a physical asset or ‘real property’ a pharmacy business has no physical component. The pharmacy business asset is ‘goodwill’, which is an intangible asset and relates to the ability of the business to generate a certain amount of income.
Pharmacy lending is unique as there is no ‘physical’ asset for the bank to hold as ‘security’ against the loan they provide.
This particular situation means that unlike home loans, the amount of lenders willing to provide finance and lending in this space is reduced given the specialty of the area.
There are usually between 3 to 6 lenders actively providing finance for the purchase of a pharmacy in the market at any one time and most of these tend to be major institutional banks; such as NAB, Westpac, ANZ and Bankwest.
When compared to the home lending market, while the amount of lenders available to a prospective buyer is smaller the ‘Loan to Value Ratio’ or ‘LVR’ the lenders will supply is also very different.
‘LVR’ refers to the percentage of lending the bank will provide against the valuation of the pharmacy business or the purchase price – whichever is the lower.
As a general rule, bank will lend for the purchase of a pharmacy with an LVR between 65% to 80%.
For example, you have purchased a pharmacy business for $1 million dollars and it has also been independently valued at $1 million dollars.
Based on the above you may be in a position to borrow (depending on serviceability) an 80% LVR.
This would mean you borrow 80% of $1 million dollars or $800,000.
The balance of the required funds for settlement of the purchase ($200,000) would be supplied through either cash savings or additional security (home equity).
Obviously, there are many more nuances involved in the lending process and it would always be best to seek advice from your Pharmacy based Accountant and Finance Consultant prior to proceeding.
But hopefully this answers the question and gives you a good initial basis of knowledge.