Though the U.S. brewery count continues to rise, so does the number of breweries that close each year. A craft beer shakeout is coming in 2017 and it's about to separate the winners from the losers.
As one of the nation's top funding sources, and resources for America's craft breweries, you can imagine we speak with countless brewery owners. Interestingly, they all pretty much have something in common, as it relates to growth. In fact, roughly 80% of America's brewery owners experience the same, yet overcomeable, challenge...
So, what is this commonality shared with thousands of brewery owners throughout the country? Access to capital. And it really doesn't really matter which end of the spectrum you're on (bankable or unbankable) it's always the same challenge.
This situation can go one of two ways:
#1. Over 80% of America's craft brewery owners do not, and never will, qualify for bank financing for one reason or another. This may be due to time in business, lack of collateral, poor credit, poor credit history, lack liquid cash flow to inject into an SBA loan, etc. Documentation Needed for SBA Small Business Loan Application
#2. Roughly 20% of brewery owners who are bankable and have institutional financing, or SBA loans in place, require additional capital along the way which their bank will not provide. Many breweries that we look at are cash flowing nicely, however, due to outstanding debt, their cash flow & debt ratios are unbalanced. Banks want to see roughly 1.10% - 1.25% debt service ratios, which is pretty unusual to see in a brewery under 3 years old. So, many brewery owners find themselves in a "chicken or the egg" scenario. They can't scale because they don't have the capacity to brew more beer, and their bank won't provide additional capital due to unbalanced cash flow & debt ratios.
Bottom line, if you want to sell more beer, you need to brew more beer. How do you brew more beer without upgrading your facility, or scaling your equipment? Simple. You don't! How do you open a taproom to sell more beer without being capitalized? That's pretty simple as well. You don't! The art and craft of brewing beer may be compared to rocked science, but the financing component sure isn't. Owning a brewery takes a constant flow of capital, and without being capitalized, you are going struggle. It's really as simple as that.
Points to consider when determining if a cash flow loan is right for your craft brewery:
Will it help you take advantage of inventory discounts? Imagine you have an opportunity to buy bulk inventory at a discount. A cash flow loan can help if you don’t have the money to make the purchase.
Will it help you say “yes” to distributing larger quantities of craft beer? To jump on the opportunity, you’d need to hire a few more brewers, and you don’t have the cash. A line of credit or short-term loan could allow you to say “yes.”
Are you entering a slow period? Another example: Perhaps your brewery is in a ski resort town and summers are slow. Ideally, you’d budget for this by saving more in the winter months, but a cash flow loan could get you through in a pinch.
Do you have outstanding invoices from your distributors? Many craft breweries experience uneven cash flow because their distributors pay invoices weeks or months after receiving their beer. If you’re in this situation, a short-term brewery loan could bridge the gap, but consider invoice financing instead.
Short-term cash flow loans are best used for short-term projects that would divert money from day-to-day expenses but ultimately grow your brewery, like taking on a big contract with a major distributor or adding extra seating in your taproom. If you need cash fast to fuel your craft brewery, a cash flow loan may be your lifeline.