Every brewery owner must overcome challenges, with funding often topping the list. But the process of obtaining brewery financing and brewery loans through a bank to help your brewery grow is easier if you have a realistic assessment of your breweries current financial state and growth potential, while understanding the reasoning lenders use in deciding to make a loan.
What Do You Need To Help Determine Your Bank Fundability?
Ideally you will have a written business plan, financial statements, cash flow projections, personal and business credit reports, tax returns and bank statements before you go to a bank.
What you actually need in terms of documentation for a loan varies greatly depending upon where you apply. Major banks and government sponsored programs, such as U.S. Small Business Administration backed loans, typically require more extensive paperwork compared with alternative funders, such as LVRG. But the information you pull together with these documents will help you to clearly see the amount that you need and what you can pay back.
What Do I Need In My Business Plan?
Your business plan must be clear about your current state and your short and long term goals. The most important part of the report is the one-page executive summary that explains your business, revenue model and details about how you will make a profit. You will also need to include financial data and competitive analysis.
How Do My Monthly Cash Flow Statements Help Assess My Business Needs?
The best way to figure out how much you’ll actually need to borrow is to create monthly cash flow projections so you can identify a specific amount with the necessary data to support your figure. Many lenders will use this information to analyze if the amount you request for the loan will be enough to help your business grow and if you will generate enough revenue to pay back the loan.
Cash flow is the net change in your breweries cash position from one period to the next. If you take in more cash than you send out, you have a positive cash flow. You have a negative cash flow if you have more cash outflow than inflow. Cash flow is a key indicator of financial health. Even with the fanciest brand name, marketing gimmick, or the best tasting craft beer, without a healthy flow of cash, no brewery can survive. Having a solid cash flow is not just about managing a healthy business; it’s a matter of life or death for an brewery. Though it may sound extreme, brewery owners must pay attention to their cash flows on a regular basis, if not daily.
What Are The Keys Factors That Lenders Consider For A Bank Loan?
Below are some of the factors lenders will review in order to determine if they will approve a loan:
- Ability to pay back the loan: Lenders will assess your potential to repay the loan under the terms of an agreement.
- Business Credit Scores and History: This a critical factor for lenders, as many have minimum requirements for all borrowers. If the business has a separate tax ID and other factors, the business owner’s personal credit score may also play a key role in the lending decision.
- Business Bank Account Rating: Information about your business bank account history, which is different from a credit score.
- Business Details: Your fundability can be impacted by a number of factors, such as the structure of the business, location and many others.
Just to give you an example, the following numbers are averages as it relates to SBA loans that get approved under $350,000. Again, these numbers are just an average.
SBA Loans $30,000 - $150,000:
- Average Revenue $346,000. EBITDA $42,000. Liquid credit 175. FICO 711. Years in business 9 years.
- Median Revenue $600,000. EBITDA $61,000. Liquid credit 176. FICO 713. Years in business 12 years.
SBA Loans $150,000 - $350,000:
- Average Revenue $867,000. EBITDA $82,000. Liquid credit 177. FICO 713. Years in business 6 years.
- Median Revenue $1.5MM. EBITDA $114,000. Liquid credit 175. FICO 713. Years in business 10 years.
Documentation Needed for SBA Small Business Loan Application:
While every loan program has specific forms you need to fill out and documents you need to submit, you will likely need to submit much of the same information for different loan packages. Before you start applying for loans, you should get some basic documentation together. The following are typical items that will be required for any small business loan application:
Personal Background: Either as part of the loan application or as a separate document, you will probably be asked to provide some personal background information, including previous addresses, names used, criminal record, educational background, etc.
Resumes: Some lenders require evidence of management or business experience, particularly for loans that are intended to be used to start a new business.
Business Plan: All loan programs require a sound business plan to be submitted with the loan application. The business plan should include a complete set of projected financial statements, including profit and loss, cash flow and a balance sheet.
Personal Credit Report: Your lender will obtain your personal credit report as part of the application process. However, you should obtain a credit report from all three major consumer credit rating agencies before submitting a loan application to the lender. Inaccuracies and blemishes on your credit report can hurt your chances of getting a loan approved. It’s critical you try to clear these up before beginning the application process.
Business Credit Report: If you are already in business, you should be prepared to submit a credit report for your business. As with the personal credit report, it is important to review your business’ credit report before beginning the application process.
Income Tax Returns: Most loan programs require applicants to submit personal and business income tax returns for the previous 3 years.
Financial Statements: Many loan programs require owners with more than a 20 percent stake in your business to submit signed personal financial statements. You may also be required to provide projected financial statements either as part of, or separate from, your business plan. It is a good idea to have these prepared and ready in case a program for which you are applying requires these documents to be submitted individually.
Bank Statements: Many loan programs require one year of personal and business bank statements to be submitted as part of a loan package.
Collateral: Collateral requirements vary greatly. Some loan programs do not require collateral. Loans involving higher risk factors for default require substantial collateral. Strong business plans and financial statements can help you avoid putting up collateral. In any case, it is a good idea to prepare a collateral document that describes cost/value of personal or business property that will be used to secure a loan.
Legal Documents: Depending on a loan’s specific requirements, your lender may require you to submit one or more legal documents.
Make sure you have the following items in order, if applicable:
- Business licenses and registrations required for you to conduct business
- Articles of Incorporation
- Copies of contracts you have with any third parties
- Franchise agreements
- Commercial leases
Questions Your Lender Will Ask You -
Forms vary by program and lending institution, but they all ask for the same information. You should be prepared to answer the following questions. It’s a good idea to have this information prepared before you fill out the application:
- Why are you applying for this loan?
- How will the loan proceeds be used?
- What assets need to be purchased, and who are your suppliers?
- What other business debt do you have, and who are your creditors?
- Who are the members of your management team?
Does It Sound Like a Lot of Work?
Well, it is! And just think, the most frustrating part is after waiting 2-4 months to get bank financing, you have roughly an 80% chance of getting turned down. LVRG didn't become one of the countries strongest funding sources for brewery owners nationwide, by accident. We not only love craft beer, we are passionate about growing craft breweries across the country. LVRG Funding is the nation’s go-to source for brewery finance and we are here to help you put your stamp on the craft beer map. Call us today toll free for more information (855) 998-5874 or click the banner below to get started!