FAQs

Q. For what purpose can I borrow under the scheme?

A. You can borrow money under the scheme for almost any pharmacy related reason. However we cannot finance speculative property investments or investments or acquisitions which are not related to retail pharmacy. Use of the scheme as a means of withdrawing funds from the business is also not allowed.

Q. What is the maximum repayment period allowed?

A. The maximum loan period is 10 years for any loan guaranteed by AAH. If the loan is not guaranteed then the loan period can be negotiated with the bank up to 20 or 25 years. (For example for a loan on the pharmacy freehold)

Q. How much do I need to invest?

A. As a first time buyer we would expect you to invest around 20% of the cost of the project by way of cash input. This should be by way of 'free' cash, i.e. savings and not money borrowed elsewhere. However, we are generally happy for some of the funds to be raised against your domestic property providing this doesn't give rise to an unrealistic level of mortgage on the property.

Q. I don't have much cash saved but I do own a property, can I use that as my stake?

A. We are generally happy for some of the funds to be raised against your domestic property providing this doesn't give rise to an unrealistic level of mortgage on the property; alternatively the domestic property or other investment property may be offered as security. It is important to appreciate that there should be at least 10% cash injection in such circumstances.

Q. I already own one pharmacy, will you support me to buy a second?

A. When assessing an application we always undertake a full assessment of all pharmacies owned and the total loan requirement, including existing and proposed loans. It is entirely possible that we will support a second or subsequent acquisition with a loan for 100% of the acquisition cost.

Q. How long does the application process take?

A. Whilst this rather depends on the complexity of the proposal, as long as all the required information is provided at the outset, we can usually provide an agreement in principle within a few days. This may be subject to further clarification on specific issues and a site visit. Whilst we will always endeavour to process applications as quickly as possible, you should ensure that you approach us at the earliest opportunity and not leave it until the last minute. After all, it is a little unreasonable to expect us to properly assess a proposal in a few hours, when you have taken several months to assess it.

Q. Why must I purchase 70% of my requirement from AAH?

A. In supporting your proposal and providing a guarantee to the bank, AAH is 'lending' you the strength of its balance sheet. This has two benefits to you. It enables you to obtain a loan from the bank at a much higher level than you would be able to achieve on your own. Indeed, a first time buyer would be very unlikely to obtain a loan at all against pharmacy goodwill alone. It also enables you to obtain the loan at an advantageous interest margin of either 1.00% or 1.25% over base rate. Typical bank lending margins to small business range from 2% to 4% over base rate. On a typical loan of £500k this could amount to a saving of £15k in the first year of the loan, which is profit straight on the bottom line.

The provision of a guarantee does generate a cost to AAH both in terms of balance sheet disclosure and in the actual running the Statim Finance department. The requirement for 70% of the pharmacy purchases to be sourced through AAH (and this includes Enterprise and Trident) is therefore viewed as fair recompense for the provision of a guarantee, whilst still allowing you to source up to 30% from other suppliers. Therefore you gain, we gain and the bank gains.

Q. Does having a loan affect my AAH trading terms?

A. No. Trading terms are negotiated relative to the size of the business and have nothing whatever to do with whether you have a loan guarantee or not.

Q. Will you guarantee my overdraft facility?

A. Generally speaking we do not formally guarantee overdraft facilities, although we accept that in any repayment situation, the bank will obtain repayment of that facility before the sale proceeds are applied to the guaranteed loan. Occasionally, a bank will insist that this understanding is formalised by way of a letter of priority. This is standard documentation and does not usually create any problems.

Q. How big an overdraft can I have?

A. A pharmacy usually has a need for a small overdraft facility to cover the situation of the delayed reimbursement of NHS prescriptions dispensed. A facility calculated as 3% of the total sales turnover (excluding VAT) is generally sufficient and facilitates the payment of expenses in those first two months when the only income is from OTC sales. It is important to remember that an overdraft should only be used to oil the wheels of the day to day operation of the business. It should never be used to purchase capital items, such as a new van or computer. Such items should be placed into a leasing or loan arrangement, which reflects the useful life of the asset.

Q. How does the cash flow of a pharmacy work?

A. The cash flow of a pharmacy has two elements to it. Firstly, the cash received from the sale of OTC products, the NHS levy and for the payment of private prescriptions and secondly, the deferred payment received in respect of NHS prescriptions dispensed.

A typical timetable of events is as follows:

• 1st Aug The pharmacy starts trading
• 1st Sept August prescriptions are submitted to the PPA
• 28 Sept A cheque is sent to the wholesaler to pay the trade account (incl. VAT)
• 1st Oct An advanced payment is received from the PPA, based upon an estimation of the value of the August prescriptions. This will be for approximately 80% of the amount due.
• 1st Oct The September scripts submitted to PPA
• 2/3rd OctThe cheque issued to the wholesaler is debited to the pharmacy bank account
• 1st NovThe exact amount is received from the PPA for August. The August advanced payment is reclaimed. An advanced payment is made in respect of the September scripts.

N.B. PPA payments exclude VAT which must be reclaimed from Customs & Excise. Hence all pharmacies should be on a monthly VAT return.

To see how this works in practice for a typical pharmacy, please click here.

Q. Can I have a second loan?

A. You may apply for a second or subsequent loan at any time providing the purpose is linked to retail pharmacy. The existing loan would continue to repay over its original term and a new loan would be set up over a new term of a maximum of 10 years. If the purpose is the purchase of the pharmacy freehold, then part of the loan could be for a period in excess of 10 years, subject to agreement by the bank.

Q. I am trading through a limited company because my accountant said this would avoid any personal liability. Why therefore, are you requesting my personal guarantee?

A. AAH is providing a guarantee to the bank in support of your business expansion and so that our wholesale business expands also. However, a guarantee carries with it a financial obligation and if at some future stage financial difficulties were to arise, the bank may call upon AAH to honour its guarantee and repay the loan. In such an instance, AAH must have recourse to the directors/owners of the business to recover any shortfall which might arise following a subsequent sale of the business. You should ask yourself the question:- if you as the owner do not have sufficient confidence in your business abilities to guarantee them, then why should a third party such as AAH?

Q. What should I do if I have trading difficulties?

A. Don't what ever you do, bury your head in the sand and ignore it. Do talk to us and the bank at the earliest possible stage so that we can work with you to find a solution to correct the position. Most problems can be solved through devising an alternative strategy, if they are recognised early enough. This is why we would always recommend that you monitor your cash flow and profitability very closely through producing management accounts at least quarterly. To only rely on the production of your annual accounts, which are way out of date by the time you receive them, is not sufficient nowadays and can result in the recognition of a problem at too late a stage to do anything about it.

Q. What is the maximum loan allowable?

A. There is no actual maximum loan, other than that determined by the financial standing of the business.