£180,000 Property Funding for an online pharmacy businessPublished on 4th November 2019 2019-11-04T09:01:04+00:00
Why you can’t take a DIY approach to your finances
Technology has made many new types of business possible - including online pharmacies. But any new business represents a risk - and an untried business idea makes the risk even greater.
Establishing an online pharmacy service can take months, and even years, to build acceptance and a list of customers, and start to turn a profit.
At Rangewell, we believe in new ideas, and when an online pharmacy came to us with a funding need, we saw the opportunities as well as the financial challenges, and we were determined to find our client answers.
Our client had set up an online pharmacy, and had been trading for three years. Establishing this new kind of business model and finding sufficient customers had been uphill work - but the business was starting to show a small profit and it looked as though the hard work that she had been putting in was starting to pay off.
However, although she was confident that her business had a bright future, it was still vital to watch the costs, and she was particularly concerned about the costs and uncertainties of renting her premises, which were located in a suite of first floor offices above a charity shop.
“Money spent on rent is money wasted and I knew that I would be better off using that money to buy an appreciating asset for the business. It would feel more comfortable if I didn’t have to worry about rent increases too.”
She approached her landlord, and found that it might be possible to buy the building for £180,000.
This would provide her with a small rent from the charity, currently £6,500 per year, and mean that her own rent - of £7,200 a year - might be better spent elsewhere in the business.
“I believed that, thanks to the rent from the shop downstairs, by buying I could actually cut my monthly outgoings. Having more money to plough back into the business would be a very good idea. The more online marketing I can afford, the more online business we can do.”
The challenge she faced
The logic seemed clear enough, but there was a problem. When she started talking to the banks, she found that her poor profit record as a start-up would be held against her.
She turned to the Rangewell team for a solution.
We looked at her circumstances and recommended that she halted her applications immediately. Raising finance for a business is often possible by going direct - but the DIY approach can leave you open to costly mistakes. In this case, we believed it would prevent her getting funding altogether.
As business funding experts, we know the criteria that banks and other lenders work to. These are strict, and any business that falls outside them is unlikely to get funding, plus any loan that is offered is likely to be at a punitive rate. Our client was running a profitable business, but she could not show accounts demonstrating several years of profit, and so fell outside the banks’ acceptability.
To make matters harder still, she had little spare cash to provide a deposit, and required 100% funding to buy the property. 100% Loan to Value is always a difficulty for lenders, and with her already difficult status, this would inevitably be a red flag for any loan.
We knew that we needed to demonstrate that her business was sound and that 100% funding was viable.
First, we found a specialist account with expertise in the online pharmacy sector, and helped them draw up a 3-year cash flow projection for the business, based on past performance and the kind of turnover and profits that are starting to be established for this type of venture.
Then armed with this very favourable forecast we approached a lender – a high street bank – which we knew would take a positive approach to new business ideas.
“Rangewell explained that my DIY approach would almost certainly mean a decline, meaning that I would have lost the chance to buy the premises. Thanks to their experience, we were able to move forward with the loan.”
They agreed to provide a loan in the form of a Commercial Mortgage at 100% of the purchase price, recognising the client’s need to invest in developing her business, on the understanding that her home would be used to support the application with a second legal charge.
The funding Rangewell arranged:
- £180,000 at 3.25% above base rate 0.75%* over 20 years
- Repayments £1,910 per month
- Total repayment £262,000
The process was fast, simple and - because we were able to approach lending specialists at the bank who understood the sector - done without the need for masses of information or numerous face to face meetings.
At Rangewell, we can help find better answers to all types of funding needs - even when there are challenges, like unfamiliar business models and new business types. Our service is independent, fast and absolutely free.
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