Craft Brewery Loans are largely available and dependent upon the specific loan request that is being made. Craft brewery owners typically rely on banks and institutional lenders for conventional loans, SBA loans and asset based loans to grow their breweries, or for the start-up of a new craft brewery venture. As with all the variation of craft brewery finance options, there is also a wide range of lending criteria that goes along with each loan type. The craft brewery loan options that may seem the most prudent, also come along with the most stringent underwriting criteria. There are various loan purposes to consider as a borrower depending on whether the brewery owner is looking to purchase an existing brewery, obtain start-up financing for a new location, seek leasehold improvements, remodel, or acquire real estate. When it comes to brewery financing, operators will face several decisions in regard to which loan products to target and which lenders to choose from.
Which loan product is right for my brewery?
There are several brewery loan and funding programs that have been used to finance craft breweries and microbreweries throughout the country. Traditionally, craft breweries have received fairly competitive loan rates and terms, with interest rates generally ranging between 4.75% and 8.75% across most types of financing and structured as fixed, variable or fixed-to-float. There are also quick close products, like a merchant cash advance, cash flow loan or revenue based loan, that have higher effective interest rates, but require minimal paperwork and no collateral. The term and amortization of a craft brewery loan from an institutional lender is often structured anywhere between five and twenty-five years, depending on the assets being financed with the loan. Financing for hard assets, such as real estate generally receive terms between fifteen and twenty-five years, while a loan for working capital or inventory could have a term of one to ten years. There are several loan products that borrowers should consider for craft brewery financing, including:
Fully amortizing up to 5 year terms. Ideal for craft brewery owners with large single purchases or need to refinance debt. Fund marketing efforts, open new locations, or purchase equipment; all while building your business credit. What’s more, term loans can be funded in as little as 3 days and require less stringent underwriting guidelines than the SBA.
SBA Loans ($350,000 - $5,000,000)
The Small Business Administration's (SBA) 504 and 7(a) loan programs are both popular alternatives to traditional financing options. A percentage, typically 75% of the full loan, is backed by the SBA so banks and lenders assume less balance sheet risk on the loan. However, all lenders utilizing SBA loan programs have to adhere to stringent loan eligibility requirements and SBA Standard Operating Procedures for loan underwriting including the pricing and terms for the loan. For the SBA 7(a) product, loan pricing can be priced using the prime lending index plus a maximum spread of 2.75% - which is maximum allowable rate. Lenders may use variable rate pricing so as the Prime rate goes up or down the interest rate on the loan will move up or down as well. Terms are structured based on the assets being financed. Obtaining an SBA loan to fuel your breweries growth will offer the most appealing rates and terms available, if you can qualify.
SBA Loans ($50,000 - $350,000)
Small Business Administration Loans are generally the least expensive financing option for small business owners. The SBA 7(a) loan is the Small Business Administration’s most popular product and offers a flexible sum of cash that can be used for anything from managing daily operations to purchasing new products and refinancing high-interest loans.
- Least Expensive Financing - It would be tough to beat the low rates of SBA loans. SBA is an excellent option for brewery owners looking to keep financing costs down.
- Great Financing for Growth - If your primary goal is to grow your brewery, getting an SBA loan is an excellent way to reach that objective. You get the funds you need on manageable terms.
- Funds in as fast as 7 days after the application is completed!
Asset Based Lines of Credit
Brewery owners may use asset based lines of credit for an array of business uses. Asset based financing for breweries can be either revolving or term loans secured by assets such as accounts receivable, or real estate.
Unsecured Business Line of Credit
Unsecured credit refers to loans or lines of credit where there is no collateral to back the loan. Although this type of lending is possible for a craft brewery, it is considered risky for lenders. The borrower's personal financial strength as well as the business cash flow needs to be strong in order to qualify for an unsecured line or loan.
Revenue Based Loans
A revenue based loan could be your breweries lifeblood and provide it with several financial benefits. When your brewery is growing, chances are you'll need an injection of cash to continue its growth. Bank loans are often times too restrictive, time intensive and highly challenging to obtain these days. In this situation, a revenue based loan may be the best solution. If you use it wisely, a revenue based loan could do wonders for your craft brewery.
Merchant Cash Advance
A Merchant Cash Advance (MCA) can provide craft brewery owners with an upfront fixed amount of cash in as little as 24 hours. The funding amount is based upon a percentage of the businesses credit card receivables or daily cash balances using historical credit card receipts and/or bank statements to determine the initial advance. The business pays back the advance, plus a percentage, often referred to as a discount factor, from a portion of their credit card receivables or cash available plus a percentage which is often referred to as a discount factor. The remittances are drawn from the business customer on a daily or weekly basis until the obligation has been met. An MCA is not technically a business loan, and as such MCA's are not limited in what rates they charge or what terms they establish and therefore often have high interest rates. For this reason it is very important for a business owner to be completely aware of how the MCA product works and how it could affect their business. MCA's are good options for small business owners who may not have strong credit but have lots of credit card activity or steady cash flow and need financing quickly.
Cash Flow Loans
Even if your brewery is growing, you may find yourself needing extra cash to cover day-to-day expenses such as payroll, rent and inventory, or to pay for short-term projects that could grow your revenue in the long run. Uneven cash flow is one of the biggest challenges of brewery owners. For this type of business financing, lenders provide you funds and use your future expected cash flow as collateral for the loan. You’re essentially borrowing from cash that you expect to receive in the future by giving the lender the rights to a predetermined amount of these receivables. These are primarily used for working capital or take advantage of short-term ROI opportunities. Your credit scores will usually be checked, but they play less of a role. As the name indicates, the lender is more concerned with inspecting your cash flow (usually bank statements) to approve your application. Turnaround time is another great feature of a cash flow loan, as funding usually takes place in a matter of days.
What is the economic impact of the craft beer industry?
In 2015, craft brewers produced 24.5 million barrels, and saw a 13 percent rise in volume and a 16 percent increase in retail dollar value. Retail dollar value was estimated at $22.3 billion, representing 21 percent market share. Additionally, in 2015 the number of operating breweries in the U.S. grew 15 percent, totaling 4,269 breweries—the most at any time in American history. Small and independent breweries account for 99 percent of the breweries in operation, broken down as follows: 2,397 microbreweries, 1,650 brewpubs and 178 regional craft breweries. Throughout the year, there were 620 new brewery openings and only 68 closings. One of the fastest growing regions was the South, where four states—Virginia, North Carolina, Florida and Texas—each saw a net increase of more than 20 breweries, establishing a strong base for future growth in the region. Combined with already existing and established breweries and brewpubs, craft brewers provided nearly 122,000 jobs, an increase of over 6,000 from the previous year.
Have questions about brewery loans? LVRG is a good place to start!
Whether you have a large commercial brewery or small microbrewery, LVRG can provide you with the funding you need to be successful. Breweries throughout the US are thriving and growing thanks to LVRG, let us show you how easy it is to get brewery financing. Don't go bank to bank searching for a lender who doesn't understand your industry. Deal direct with an entire lending team laser focused on craft breweries and find out why we lead the way.