Every craft brewery, brewpub, microbrewery or taproom owner sometimes faces situations where they need quick access to capital to address immediate needs, sometimes those needs involve solving a near-term challenge, but often they are to take advantage of opportunities. Establishing a business line of credit is one way many brewery owners prepare for those immediate cash needs.
A business line of credit (or LOC) is a revolving loan that provides a brewery owner access to financing up to a fixed limit that he or she can use, repay, and use again as needed. Craft brewery line of credit can be either:
- Secured: A secured business line of credit requires the business owner to pledge assets as collateral to secure the line. If the borrower is unable to repay, the lender can look to take ownership of the collateral and liquidate the asset to pay off the balance. (typical for bank loans and SBA brewery loans)
- Unsecured: An unsecured business line of credit does not require collateral, as a result, many lenders will require a stronger credit profile and a longer business track record. Additionally, the interest rates on an unsecured business line of credit could be higher. Unsecured credit lines are typically smaller than secured credit lines.
Term Loans and Credit Lines are Different
While both a term loan and a line of credit are popular ways for many brewery owners to fund short-term capital needs, they are different. In fact, some brewery owners will use a term loan to borrow for a specific project and maintain a line of credit for incidental short-term needs that crop up.
A term loan is a fixed amount of funds borrowed and repaid over a specific time period. The brewery owner takes the proceeds of a term loan in one lump sum. The loan is repaid in a pre-arranged schedule of periodic payments that typically stay consistent over the course of the loan (assuming a fixed rate).
A business line of credit to fuel your craft brewery, microbrewery, brewpub, or taproom is more flexible. Businesses are given a credit limit they can borrow against as needed, repay the balance, and borrow again, during the term of the credit line. Payments can vary according to the current balance of the credit line much like payments on a credit card vary as the balance increases or decreases.
When Would a Business Line of Credit Make Sense for My Brewery, Brewpub, Microbrewery or Taproom?
If your brewery encounters occasional, and perhaps unpredictable, short-term capital needs, a line of credit could make sense for your brewery. Here are a few simple examples of how craft brewery owners use a business line of credit:
- A seasonal brewery that generates most of its sales in the summer can use a business line of credit in the off-season to help cover overhead. Perhaps your brewery, microbrewery, brewpub or taproom is in a ski resort town, and your busy time is in the winter months. The business line of credit would allow you to maintain normal business activities even as their income fluctuates.
- Some breweries use a line of credit option to finance short-term needs like a marketing campaign or a relatively small inventory purchase. The balance can be repaid quickly and used again when needed.
- A line of credit can also be used to cover expenses while waiting for your distributors to pay their accounts receivables, making it a useful cash management tool.
Does My Brewery Qualify and Where Can I Find a Line of Credit?
Many lenders (including most major banks, credit unions, and online lenders) are reluctant to offer a business line of credit to a breweries without a well-established and reasonably strong credit profile. They prefer established companies with a track record and revenues to support the more flexible financing provided by a line of credit. Credit limits will vary depending on the lender, a business’ credit profile, and time in business. With LVRG, our minimum criteria for a brewery line of credit is 9 months in business, 500+ credit score and $15,000+ in gross revenue.
A business line of credit is another tool available to help business owners’ access capital when they need it for appropriate purposes. If you’d like to learn more about a business line of credit from LVRG and our 100 strategic funding partners, call (855) 998-LVRG or click below!