Loan breaches soar thanks to price disclosure

piggy bank, money and calculator

Price disclosure has resulted in an “alarming” increase in loan breaches, says financial services provider

Mark Churchill, managing director of Allfin Financial Services, says that continued tough times in pharmacy could cost many pharmacists their businesses.

“We are expecting there to be a flux of breaches across the pharmaceutical industry at the end of this cycle.

“Some of our clients have reported shortfalls of up to $150,000 in a 12-month period,” Mr Churchill says.

He says there has been a worrying increase in the incidence of covenant breaches on loans, causing banks to raise interest rates by up to 2%, or request a revaluation of the pharmacy.

If a pharmacy’s LVR then extends beyond 80%, the bank may ask the owner to pay back large sums of debt or exit the bank, he says; at worst, there is a “very real” threat of the bank acting to repossess the pharmacy.

“We’re getting more involved in reviewing client covenants, because we want to help them avoid these scenarios,” Mr Churchill says.

He warns that if an owner is having difficulty meeting repayments, it is much better to approach the lender with a solution rather than a problem.

The most common predicament is when pharmacists are carrying too much debt, he says.

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    All the advocates for removing location criteria should read this very carefully. I suspect it is going to get much harder to borrow money, even with the status quo.

    • Andrew Gray

      It’s because of said location rules that such monstrous loans needed to be taken out in the first place.

      Doesn’t it just make sense that a pharmacist should be able to, after their training, go out and open a pharmacy; practice their profession and serve the community with their skills and knowledge, free from gigantic monetary obligations to some random other pharmacist and banks? That’s how it was in Australia for decades, up until relatively recently. Our inability to return to that shows that the location rules have created an addiction.

      • Expat In Blighty

        As someone who’s been around for a while, I’d offer that the location rules served their purpose well enough and pharmacy purchases were within the means of regular graduates (sure if you were young you’d buy in or partner with a Uni mate). I remember plenty of graduates at the time who saved for a couple of years, bought their own little pharmacy, worked hard and did well. It is the broadening and often complete lack of enforcement of the ownership/pecuniary interest rules that has catapulted goodwill values to relatively unattainable levels.
        I guess I understand the number of people moaning about the location rules as there’s more chance of those changing than the ownership rules changing! Much to pharmacy’s chagrin.
        Good luck!

      • Jarrod McMaugh

        Your logic is faulty

        Look at housing prices, cars, other businesses

        There are very few people who can leave University and buy any of these things. Pointing the finger at location rules fails to explain why all.of these other previously affordable “life purchases” are also out of reach.

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