It is likely that at some stage during your pharmacy career you will need to obtain bank finance. The first time is when you purchase your pharmacy and the second is when you carry out a refit.

There are a number of things that you need to consider when taking out a loan. Obviously the two main points are the interest rate and the term of the loan, ie, over what period you repay it. But there are other things that you will need to consider as well.

Not all banks charge the same rate of interest, so although your first point of call will be your current bank it is worth asking other banks what they charge. If you go with another bank you will need to move all of your banking to them, but changing your bank is not the problem that it used to be.

Not only should you consider the interest rate, but also whether you take a variable or fixed rate. A fixed rate gives you more certainty over your repayments but if interest rates move against you the loan may cost you more. On the other hand, it could cost you less if interest rates move in your favour. There is no certainty over which way, and how quickly, interest rates are going to move so there is no right answer to the question of fixed or variable. One other drawback with fixed rates is that you cannot normally repay the loan early. However, although base rates have been very low for many years this has not always been the case.

The longer you take to repay the loan the more you pay in the long run, but with a lower monthly repayment. The most important point to consider here is how much you can afford to repay each month. This will depend on the profitability of the pharmacy and only you and your accountant can decide this.

The best way to do this is to prepare a cashflow forecast to calculate how much surplus cash you have each month. Your accountant will help you with this. Make sure you build some contingencies into your cash flow to allow for those unexpected expenses. This cashflow will form part of a business plan that you should prepare to show the bank what you want to borrow the money for, and how you will repay it.

The bank will want to take security over your pharmacy licence and over the property from which you operate. It may also ask to take security over your family property. As far as possible you should resist giving personal guarantees or offering your personal assets as security. However, this is not always possible, particularly if you are borrowing a large sum so you need to be aware that by giving your house as security you could lose it if you don’t meet the loan repayments.

Once it has lent you the money the bank will want to see your accounts each year to check how the business is performing and to check that you are making sufficient profits to continue repaying the loan.

Banks have come in for a lot of criticism in recent years, but in general they remain keen to lend to well-run profitable businesses. So don’t be worried about approaching them to fund your acquisition or refit, just make sure that you can afford to repay the loan, even if interest rate are much higher than they are now.