5 Ways a Line of Credit Can Save Your Pharmacy, from Payroll to Vendors

Running a profitable business is hard, especially if you are simultaneously working as a pharmacist.

Now that DIR fees are being assessed at the point of sale, profit margins are being squeezed more than ever. The Change Healthcare hack is but an extreme example of how unpredictable and fragile the reimbursement environment has become. 

You care deeply about your patients and their health, and you must have the drugs they need when they need them. Your employees are critical to the success of your business, and they will only stick around if payday keeps coming. Both are examples of what is necessary to keep your business alive, regardless of how tight cash flow has become. This is where a line of credit can come in to save the day. 

Why a Line of Credit is a Critical Tool for Your Pharmacy

1. Turning Your Vendor into Your Lender - Stop Borrowing from Your Wholesaler 

   Invoice dating and extended terms from your primary wholesaler can sound tempting when cash flow is tight. These options are easy and provide relief, but they only buy you time. When that finite period expires, if you can’t pay back the money, your wholesaler may withhold rebates or even orders. These financial obligations often turn into loans that can carry 18% interest rates. Wholesalers aren’t banks!!! When the company that controls your cost of goods becomes your creditor, you put your business at risk! A line of credit from an independent bank or lender doesn’t complicate your relationship with your primary wholesaler.

   
   

2. Competing With Larger, Better Funded Pharmacy Chains - Keep Inventory Stocked  CVS, Costco and other national pharmacy chains always have the inventory they need to serve patients. When an independent pharmacy owner can’t afford to maintain its drug inventory because cash is tight, you can lose patients forever. Don’t allow cash flow constraints to impact your inventory levels. A line of credit gives you the money you need to maintain your drug inventory so you’re never at risk of losing patients.

   
   

3. Growing A Pharmacy Can Be Expensive - New Patient Reimbursements Take Time  Adding a new LTC facility or bringing on new prescribers are how pharmacy owners grow their business. The problem is, you dispense the drugs and have to wait until you get reimbursed. Successful pharmacy owners sometimes feel cash poor when they are actually growing their business. A line of credit provides the perfect financing option for growth capital. Draw the money when you need it and pay it back when you get reimbursed.

   
   

4. Realizing When Something Is Broken - Fixing Problems Can Take Time and Money  Many pharmacy owners were damaged during the pandemic. When patient needs shifted to testing and vaccines, it became difficult to focus on your core business. Stimulus money like PPP and EIDL loans masked underlying problems in pharmacies. Today, the stimulus money is gone, the testing is gone, the vaccine money is gone and if your core business isn’t profitable, you’re losing money. The DIR Fee hangover and ensuing cash crunch is forcing pharmacy owners to reexamine their businesses. Fixing what’s broken can take time and treasure. A line of credit provides the time you need to stabilize your business, identify what needs to change to make your pharmacy profitable and headed in the right direction.

   
   

5. Weathering The DIR Fee Storm – The Devastating Impact of The Double-DipThe DIR Fee hangover has hit retail pharmacy owners hard. Once collected months after pharmacies dispensed scripts, DIR Fees are now assessed at the point of sale. While this allows immediate insights on patient profitability, and transparency will serve pharmacy owners in the long run, profit margins in the early months of 2024 were constricted, leaving little extra cash available for when third-trimester DIR Fees from 2023 were assessed in March and April. Few pharmacy owners were fully prepared for this reality and have been foregoing salaries or invading retirement accounts to pay bills. Obtaining a line of credit provides liquidity that stabilizes cash flow until cash flow becomes normalized.

How Do You Get a Line of Credit?

Your first, best option is to contact your current commercial bank (where you keep your business checking and deposit accounts) and ask a banker there to help you obtain a line of credit. They know you; you have history there and your interest rate should be the lowest with them. The process may take several weeks (because they will conduct a thorough underwriting process) but they will be the most money and the lowest rate.

What If I Can't Wait Two Months to Get Financed by My Current Bank?

PharmLine partnered with Kapitus and Credit Bench to offer pharmacies an Easy Button option to getting a line of credit, or an SBA loan. Kapitus is to business lending what Lending Tree is to home mortgages. You complete one application and Kapitus sends it out to their marketplace with dozens of lenders who compete for your business. You are offered the best terms and conditions you qualify for.

Hundreds of pharmacies have applied for PharmLines and dozens of pharmacies have borrowed millions of dollars in as little as the next business day. Options include SBA Express loans (bank rate loans up to $350,000) to commercial lines of credit up to $1 million.

If you need more than a million dollars, you may qualify for an ABL loan with a rate as low as 7.49%. (ABL lenders underwrite asset-based loans by advancing capital against near-term assets like accounts receivable, inventory, and equipment) Larger credit facilities require extra-special handling.

Before Borrowing Consider the Risks Involved

Borrowing money is an important decision. Make sure you are borrowing money for the right reasons and have a plan to pay the money back. Many pharmacies are losing money and only qualify for expensive, high interest rate products. If you are in this position, you must have a plan to return your business to profitability BEFORE you use high interest money to stabilize your business and keep your drug shipments coming. Once profitable, the strategy is to refinance your high-interest line of credit with a bank-rate, SBA loan with a low monthly payment you can easily afford.

Get Help if You Need Help!

Contact our guides from HealthGrowth Pharmacy Solutions here if you need support in executing this strategy. HealthGrowth is the premier pharmacy management consultancy in the US and can help you turn your business around, so that you can make it through this storm and be prepared for the future.