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 Oct   The cheque issued to the wholesaler is debited to the pharmacy bank                  account
• 1st Nov      The 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.

Q. What is the minimum loan level?

A. The minimum loan is £25,001

Q. Can I source product from short line wholesalers?

A. You enter into a commitment to purchase at least 70% of your product requirements through AAH group companies (This includes Enterprise and Trident). You are free to source your requirements above this level from any supplier, although many customers commit to us totally, in recognition of the valuable support we are providing to them.

Q. What will happen if I don't meet the 70% target?

A. Ultimately we will withdraw our guarantee, in which case you must negotiate direct with the bank if you wish to continue to have the loan. The bank will inevitably increase the interest margin to a commercial level, perhaps 3% or 4% over base rate and probably ask for alternative security. Before we withdraw the guarantee however, we would provide you with every opportunity to correct matters but ultimately you must accept that there is no commercial logic in supporting a business which is not prepared to keep to the terms of the agreement freely entered into when the loan was drawn.

Q. Should I trade as a limited liability company?

A. There are several reasons why you may consider incorporating; some of them financial and you should fully discuss the options with your accountant. It is relatively straightforward to switch from a sole trader or partnership status to that of a company but quite difficult to reverse the process. You should therefore, seek professional advice before committing yourself. If you are not a qualified pharmacist or if you wish to go into partnership with someone who is not, then in England and Wales you have no option but to incorporate and appoint a superintendent pharmacist who is then responsible for all pharmacy activities committed in the company name.

Q. Why is AAH asking for security in addition to the bank?

A. If you trade as a limited company and have a loan guarantee, then AAH will usually insist on taking a debenture security over the company, ranking after the one which the bank will hold. A debenture is a security which a company can give over its assets and it ensures that AAH, in common with the bank, ranks as a secured creditor rather than as an unsecured creditor. This is justified on the grounds that AAH has a duty to its shareholders to minimise its risk of potential loss in the future, however small. The other effect is to effectively reduce the risk of loss by a personal guarantor, so it is in your individual interest as well.

Q. What security will be acceptable for my loan?

A. The bank will take a legal charge over the pharmacy premises (whether freehold or leasehold) which includes the goodwill of the pharmacy, I.e. the licence to dispense prescriptions. If the business is incorporated, then the company must provide a debenture security to both AAH and the bank and personal guarantees may be required from the directors and major shareholders. Term Life cover will also be required and competitive quotes can be obtained for you by us. Depending upon the nature of the proposition, there may be a requirement for further security and each proposal is considered on its own merits.

Q. Why am I charged two fees - one by Statim and one by the bank?

A. The bank charges an arrangement fee based upon 1% of the amount of the loan but capped at a low level. This represents a significantly lower cost that would be the case outside the scheme. Statim charges a fee of 1.25% of the loan amount but capped at £1,250. This fee has remained unchanged for over ten years now and represents tremendous value for money when you consider the amount of time and effort which the Statim team put into the assessment of each proposal.

Q. Why can't I have an extended credit arrangement on my trade account? It would be cheaper for me.

A. Extended credit should not be viewed as a form of finance. Whilst it is true that interest is not normally charged and therefore perhaps there are a few pounds to be saved there, the term is very short and because of this, the effect on the cash flow of the business is very negative. Much longer periods of extended credit are not feasible and we would necessarily be limited in the amount we could advance and the number of customers who could benefit. We consider that a formal process of financial assessment, working closely with a banking partner, is a more professional approach which enables support to be provided to many customers.

Q. Why do you require my annual accounts when my loan is being repaid without any problem?

A. We are required by our auditors to ensure that the businesses we support are soundly based and trade profitably and therefore represent a managed risk which is acceptable to our parent company and shareholders. The provision of annual accounts within a reasonable timescale enables us to confirm this and also helps us to be aware how the business is developing and ensure that the 70% spend requirement continues to be met as the business expands. We will occasionally request up to date NHS returns and with the larger loans may also require quarterly management accounts. The provision of this information should not be viewed as an imposition but as a reasonable condition of a lender providing financial support.

Q. My nearest competitor is a branch of Lloydspharmacy, therefore I am reluctant to provide you with information which might used to my commercial disadvantage.

A. Firstly we guarantee that whatever information you supply to us will be treated in the strictest confidence and would never be released to a third party, including Lloydspharmacy, without your written consent. Secondly, whilst Lloyds and AAH are part of the same pan European healthcare group - Celesio AG, the management and structure of the two companies are totally distinct and separate. Lloyds and AAH do operate on a customer supplier basis but please accept that we have built up a reputation within the industry over the last 20 years, which we value highly and which would be instantly destroyed should be betray a confidence along these lines. There is obviously no commercial logic in our taking such an action and any concerns you may have had are entirely groundless.

Q. I am planning to incorporate my business but I want to keep the freehold in my name. Is this OK?

A. This is quite a common request and it is quite in order. You will however, need to instruct your solicitor to draw up a simple lease agreement between yourself, as landlord and the company, as tenant, in order to give the company the legal right to occupy the premises. You will also need to transfer the dispensing licences into the name of the company. We will arrange with the bank for the loans to be transferred (although if one of the loans is against the freehold it may be possible for that to remain in your name) and the new security taken. You should allow for some cost in your budget to cover the expense of the changeover.