Is it Worth Selling a Pharmacy Note at a Discount in Vermont?

By Brad MacLiver
Authorship and profile at Google


When a Vermont (VT) pharmacy acquisition has been accomplished by using the private financing method of a pharmacy business note, the holder of the pharmacy note in Vermont has the option of selling the pharmacy business note for a lump sum of cash instead of waiting for the monthly payments and taking the risk those payments will always be made. Pharmacy business notes can be sold by using a discounting method. Instead of buying a pharmacy note at its face value, the pharmacy note will be discounted. Meaning the Investor will pay less than face value due to the risk being transferred from the Pharmacy Note Holder (the note seller) to the Pharmacy Note Investor (the note buyer).

Most pharmacy business note sellers only look at the discount rate and quickly calculate in their head that they are giving up too much money to make the selling of the Vermont pharmacy note an attractive proposition. However, further analysis needs to be completed before a final decision is made by weighing the discounted amount with the benefits of a lump sum of cash.

1. What is the motivation for selling the VT pharmacy note? What are the desired goals? Is reducing the exposure to risk a consideration? Is there a financial decision to pay off debt? Is capital required for a new venture? Are there dreams of exotic vacations or world travel that could be accomplished with a lump sum of cash? How important is it to accomplish these goals? What are the opportunity costs if you don’t have the lump sum of cash to achieve your goals, or invest in something that pays a higher return? Determine investment and family priorities.

2. What is the Current Fair Market Value of the pharmacy business? This is what someone is really willing to pay for the business, and not just an “earnings times x” formula. Real aspects of what is happening in the pharmacy industry must be considered and it is advantageous to have a Vermont pharmacy industry specialist calculate the pharmacy business valuation.

3. How much cash is immediately required by the holder of the pharmacy note?

4. A pharmacy note in VT that is seasoned has more value than a “green” note that doesn’t have a payment history. Are you willing to hold the note for a certain amount of time to allow the business buyer time to prove to an Note Investor the capability of the payor making the payments?

5. Are you willing to sell only a portion of the Note (this is called a “Partial Sell”)? The discount rate can be a more attractive proposition when only a portion of the note is sold and the Pharmacy Note Investor is not holding all the risk.

Understanding Risks for the Note Buyer:

1. Pharmacy Buyer Competency: There is the risk that the pharmacy buyer may not run the business as efficiently as you have, sales drop, and the Vermont pharmacy business buyer cannot meet the payment obligations. Incompetency could lead to late payments, missed payments, or bankruptcy.

2. Pharmacy Industry Changes: Changes caused by influences either within the industry, or regulations governing the industry, can make it increasingly difficult for the pharmacy business buyer in VT to meet the contractual financial obligations.

3. Future Competition: Sales and income of the store may be affected by yet unforeseen Vermont pharmacy competition either building in the neighborhood or through mail order.

4. Loan to Value: When originating a pharmacy business note in Vermont you may be creating financing where there is a “negative loan to value.” Example: the pharmacy business note is for $250,000, but there is only $75,000 of tangible assets for collateral.

5. Title Insurance: Pharmacy business notes in Vermont don’t have title insurance that will make good a loss arising through defects of titles, or liens.     

6. Time Value of Money: Where a dollar received today is more valuable than a dollar received in the future.

7. Opportunity Costs: When the selection of holding the Vermont pharmacy business note ties up capital and prevents potential financial gains from other investments.

It is beneficial to discuss the options and potential origination of a pharmacy note with Pharmacy Business Note Investor before the Purchase and Sale Agreement is finalized for the acquisition of the pharmacy. This provides the VT pharmacy business seller, and future note seller, valuable insight into structuring the pharmacy business note so it can be successfully purchased.


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Bridge Loans and Pharmacy Acquisitions in Vermont

By Brad MacLiver
Authorship and profile at Google


With the changes in the Vermont (VT) pharmacy industry independent drug store owners, small and regional pharmacy chains, and Vermont pharmacy equity investment groups are acquiring pharmacies to obtain a larger competitive footprint in a geographic area. During the acquisition phase of the business expansion there may be opportunities that require action, which is faster than the traditional funding process.

Bridge Loans are a short-term financing option and are used while waiting for permanent financing, or the next stage of financing to be obtained. Bridge loans provide funding to "bridge" the gap between a company’s current needs and their long term financing requirements.  Permanent financing is generally used to "take out," or pay back, the bridge loan.

One of the characteristics of a bridge loan is that they can close quickly, which in turn allows a company to capitalize on a timely business opportunity, or acquisition. The quick access to money can also allow a business the chance to avoid penalties, bankruptcy, or other temporary problems. If longer term issues need to be dealt with, this “transitional financing” provides the company time until longer term financing can be secured.

Another characteristic of bridge loans is that the process usually requires less documentation than conventional financing. Bridge loan lenders don’t usually have the same government regulations to adhere to, so they tend to have more flexibility in their lending criteria and the documentation they require. However, less documentation does not mean they won’t perform due diligence to have a comfort level with the transaction before they fund.

Examples of using Bridge Loans in Vermont Pharmacy Transactions:

1. An independent VT pharmacy owner learns of health issues and decides to quickly sell the family owned pharmacy to an employee or local competitor. Traditional financing for the pharmacy buyer may require a time line that is not acceptable when considering the circumstances. A bridge loan can be used to quickly accomplish the transaction.

2. A small pharmacy chain needs $1 million to expand their business. They have 3 new equity investors who will be investing in the firm over the next 6 months, but at different intervals. However, the business has opportunities which require action sooner than 6 months. The quick closing bridge loan allows the pharmacy chain in VT access to the needed funds so they can complete their expansion and increase profits. Money from the 3 new equity investors will pay off the bridge loan.

3. A Vermont pharmacy owner in a leased location has an opportunity to quickly acquire a commercial property that would be a great pharmacy location, but the property is in disrepair. A bridge loan provides the needed funds to acquire and rehab of the property and once that is complete conventional long term financing can be obtained.

4. A pharmacy group in Vermont developing new pharmacy locations can receive bridge loan funding to get through the permitting process of a project when conventional financing isn’t available at this early stage due to there is still too much risk. A bridge loan allows the project to move into the construction phase and then qualify for other forms of financing.

5. When a pharmacy in Vermont is owned by two or more partners and one of the partners is ready to exit the business, a bridge loan can help ensure the cash flow and uninterrupted operation of the business during the partner buyout.

6. Real estate, or equipment bought at auction may have a narrow window for closing the deal and timing of traditional financing would keep the buyer from proceeding with the opportunity. Benefits of a bridge loan will permit the Vermont pharmacy owner to quickly respond to the opportunity.

When there are business opportunities, buying pharmacies, selling pharmacies, quick deadlines, an old loan maturing before a new loan can be put in place, funding needs during the permit, planning, or evaluating stages, etc., bridge loans can be an essential financial tool.

Tips regarding pharmacy bridge loans in VT:

1. Bridge loans are quick to obtain but they expire quickly.

2. Bridge loans are similar hard money loans and the terms are often used interchangeably during conversation. Both loans are short-term, higher interest rate, and non-standard loans, but hard money can refer to the lending source in some circles, while a bridge loan refers to the duration of the loan.

3. Because a bridge loan will usually come with a higher interest rate rather than traditional financing with a larger down payment.  This results in a lower Loan to Value (LTV) and a lower level of risk and provides an opportunity for lower interest rates.

4. Due to the shorter time period of bridge loans, borrowers will need to keep in mind that fees for valuations, legal, dues diligence, etc., will be amortized over a smaller period of time than traditional financing transactions.

Take note that the types of deals which require bridge loans may be considered speculative in nature or have higher risk factors. Because of this, banks will often refuse to offer bridge loans. Banks must also meet government regulations, so they need to justify their lending practices. Bridge loans, which are riskier, do not usually fall within the lending parameters of many banks. A majority of the bridge loans must therefore come from private investment firms.  It is best to talk with a company that has access to several funding sources who can provide bridge loans.

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