Asset Based Loans For
Pharmacies and Drug Stores

Asset based loans are any kind of loan secured by an asset. If the loan is not repaid, the asset is seized by the lender. A mortgage is an example of an asset based loan. However, the term asset based loan is used more commonly to describe business lending.

Terms for asset based loans are usually for a short period of time and interest rates may be higher than conventional financing. However, these loans are often needed by pharmacies that would not have their required funding needs met by a conventional loan process.

Real estate, accounts receivable, inventory, machinery and equipment are the typical assets that secure the loan. However, assets such as things like the value of pharmacy script files, a trademark, or intellectual property may also be considered in an asset based transaction. The loan may be secured by a single asset, or a combination of assets.

Asset based lending, sometimes referred to as "equity based" lending, is easier to obtain for borrowers who do not conform to typical lending standards, because the lender is secured by the equity of the asset and not the company’s past credit history. This type of lending can be pursued when normal avenues of raising funds hasn’t worked, or the company is in a financial position unattractive to conventional lenders.

Asset based loans can provide the funds allowing an independent pharmacy owner, or a small pharmacy chain, the ability to capture a quickly developing market opportunity, absorb the costs of an acquisition, assist in leveraged buyouts, or provide a line of credit to bridge financially difficulties the company is experiencing.

An asset based business line of credit can allow the pharmacy to bridge itself between the timing of cash in-flows and cash out-flows. Cash flow issues usually revolve around accounts receivables. This requires the lender to monitor and audit the company’s accounts receivables, but this also allows the borrower the ability to obtain larger lines of credit.

With the current world wide lending difficulties, asset based loans for pharmacies need to be considered as a possible solution when conventional financing is not going to work.

Tips regarding asset based loans for pharmacy and drug store owners:
1. There is a lower cost of capital for asset based loans than factoring.
2. Conventional loans require debt to equity ratios of 4 to 1 or less. Asset based lenders may allow ratios of 10 to 1, or possibly higher.
3. Asset based lenders may require day-to-day monitoring of the receivables where Factors may require total control of the receivables.

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