Expanding your brewery, adding on a taproom, purchasing brewery equipment, and evening out cash flow can all be managed with the right type of brewery financing. Can you bank on bank financing? Not nowadays. Bank loans do not provide the short-term influx of cash flow necessary to sustain and grow craft breweries; not to mention, they're near impossible to obtain. Or, what happens if you already have a bank loan and need additional capital? We have put together an all encompassing guide to walk you through your craft brewery financing options...
Brewery Cash Flow 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 craft brewery can survive. Having a solid cash flow is not just about managing a healthy craft brewery, it’s a matter of life or death. Though it may sound extreme, craft brewery owners must pay attention to their cash flows on a regular basis.
The importance of strong cash flow is aptly stated in the common expression "cash is king." The premise of this is that having cash puts you in a more stable position with better buying power. While you can borrow money at times, cash affords you greater protection against loan defaults or foreclosures. Cash flow is distinct from cash position. Having cash on hand is critical, but cash flow indicates an ongoing ability to generate and use cash.
Even if your craft 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. Perhaps you are ready to expand your distribution network or open a taproom. You options are limited without proper cash flow. Uneven cash flow is one of the biggest challenges of craft breweries across the country. In a perfect world, you’d walk into your local bank and walk out with a brewery loan long before you wound up in a cash crunch. Well, those days are few and far between. If you haven’t been in business at least two years, or lack good credit and collateral, chances are a traditional bank loan is never going to happen.
In order to deal with this shortfall, a cash flow loan to fuel your craft brewery may be your best option. For this type of brewery 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. Craft brewery cash flow loans 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.
A cash flow loan may be used for any brewery expense, but some common uses are:
High ROI short-term opportunities
Purchasing highly-discounted inventory
Hire additional brewers
Build-out a brewery taproom
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.
Revenue Based Brewery Loan:
A revenue based loan could be the lifeblood of your craft brewery, microbrewery, brewpub, or taproom; 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 and near impossible to obtain these days. In this situation, revenue based financing may be the best solution. If you use it wisely, a revenue based loan could do wonders for your craft brewery, microbrewery, brewpub, or taproom. Without being capitalized, chances are you'll wind up in a growth stalemate. Here are three ways that revenue based loan can save, and even grow your brewery:
#1. If your craft brewery, microbrewery, brewpub, or taproom, is under 2 years old and starting to scale, you obviously want to ride the wave. You cannot do this without a dependable source of capital. Bank criteria is typically a minimum of 2 years in business, strong cash flow, positive ratios, perfect credit, and be profitable. Which no craft brewery, microbrewery, brewpub, or taproom is within the first two years, often times, not even within the first five years. This type of loan will give you a shortcut to cash since it only requires a few months of business bank statements; whereas banks require 2 to 3 years of business and personal tax returns, income statement, P&L, balance sheet, personal financial statement, debt schedule and countless other documents to complete loan package. Many times with revenue based financing, your business bank statements are enough to demonstrate that you can repay the loan.
#2. You're busy running a brewery, you don't have to time to compile overly detailed loan packages and chasing after loan sources. All you know is that you need cash quickly and even if you could get approved for a bank loan, is it really worth all the trouble? Revenue based financing will provide cash quickly with a very short turnaround time. If you are prepared to apply for a revenue based loan and have the appropriate supporting documents ready to go, you may be able to get funding in as little as 24 hours. Compare that to a bank loan where the loan process is on average 2 to 8 months. This is one of the main advantages of revenue based financing. Some breweries actually consider this a lifesaver, and will go this route over a bank loan any day.
#3. Revenue based financing will not weigh you down with long-term debt. When you obtain a revenue based loan, you will not be looking at 10 to 25 years to repay a loan for money that you're using today. Think about it, why would you want the headache of paying off a 2016 marketing campaign all the way into 2041? No to mention, having every asset to your name locked up that entire time as well. Having this type of long-term bank debt could hurt your chances for getting funding in the near future, which all craft brewery, microbrewery, brewpub, or taproom owners will need. With a revenue based loan, you will pay it off in roughly 6-24 months, which makes more sense for short-term expenses. Additionally, LVRG is usually willing to replenish the loan after roughly 50% is paid down, so you can continue getting more capital along the way.
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 up your equipment? Very simple. You don't! How do you open a taproom to sell more beer without being capitalized? That's pretty simple too. You don't! The art and craft of brewing beer may be compared to rocket 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!
As you see, the steps mentioned above show you how a revenue based loan could be advantageous for your craft brewery, microbrewery, brewpub, or taproom. It helps you grow your brewery quickly and it does not saddle you down with long-term, highly encumbering debt. It gives you the cash that you need quickly, to grow your brewery your way. What more could a growing brewery need?
Brewery Line of Credit:
A Brewery line of credit allows a craft brewery, microbrewery, taproom, or brewpub owner to draw against a lender-specified amount of financing on an as-needed basis. The advantage of a brewery credit line is that you only pay interest on the funds you actually draw, so you’re not stuck paying interest on capital you don’t have an immediate use for. Here are a few craft brewery line of credit options to consider:
#1. Traditional Line of Credit
The traditional line of credit is typically meant for experienced brewery owners with proven brewery models. Which makes sense since the credit maximums are sizable, the rates are lower, and the requirements demand higher credit scores and annual revenue reporting. If you’re a brewery owner taking out a line of credit, you’ll be spending that flexible cash on seasonal brewery expenses, payroll and other operational costs, insurance against emergencies and for sudden opportunities. In other words, as a capital cushion. It’s there for you when you need it.
#2. Short Term Line of Credit
The difference between a short-term line of credit and a traditional line of credit is more or less the same as the difference between your typical short-term loan and conventional bank or longer-term online loan Therefore, a short-term line of credit has a higher interest rate, lower credit maximum, faster turnaround time and looser application requirements. Unlike the traditional line of credit, the short-term line of credit is generally offered by alternative lenders rather than by banks. The point isn’t that one is better or worse, they appeal to different groups of brewery owners. Those with lower credit scores, smaller annual revenues, or newer breweries might only qualify for a short-term line of credit. And although the short-term line of credit tends to be more expensive, its value lies in giving younger craft brewery the opportunity to maintain a flexible pool of capital. A craft brewery line of credit provides flexibility that a regular brewery loan doesn’t. With a craft brewery line of credit, you can borrow up to $100,000 and pay interest only on the money borrowed. You then draw and repay funds as you wish, as long as you don’t exceed your credit limit. Need to manage cash flow? Buy inventory? Pay for a surprise expense? Then a brewery line of credit makes sense.
#3. Invoice Line of Credit
The basic idea behind invoice financing is that, sometimes, customers take a long time to pay you back -- but you might not be able to wait. Instead of relying on short-term loans to cover operating costs, or digging into your savings, you could just get those invoices paid right away -- although you’ll have to shoulder the costs of that speed and efficiency. An invoice-backed line of credit follows the same logic. The value of your invoices determines your credit maximum, and you can draw capital as needed instead of relying on your customers to pay on time. And as your invoices increase, you’ll typically have access to more cash from the line of credit as well.
Brewery SBA Bridge Loan:
For brewery owners of all sizes in need of capital, an SBA loan or traditional bank loan can be a wonderful solution. There is no denying the fact that institutional financing offers the best rates and terms, assuming you qualify and are prepared to undergo a very grueling few months. Unfortunately, many brewery owners often face obstacles throughout the SBA financing process that may require immediate financial support, including:
Limited Cash Flow
Extremely Slow and Cumbersome Loan Processing (typical SBA time frame is 2-8 months)
Costly Requirements (expect up-front fees, and be ready to inject up to 30% cash of the total SBA loan amount)
If you are in need of instant capital to keep your brewery flowing, LVRG Funding's SBA Bridge Loan can be the smart and simple solution. A short-term infusion of capital will allow you to pay off tax liens, replenish cash-depleted by the loan process, or simply assist you with managing your brewery in the interim.
Protect Cash Flow -
The funds acquired through this program can alleviate your short term financial strain, maximize your working capital and protect your margins and cash flow.
Speedy Process -
We take the worry out of the financing process. Unlike traditional means of financing we’ve simplified the process, so you focus on what really matters to you the most...your brewery.
Easy to Manage -
We pride ourselves on our simple yet effective repayment structure, offering the convenience of fixed and automated repayments.
Fair Financing and Repayment Terms -
The amount of financing you qualify for is determined by your monthly gross sales, providing you with a fair and affordable repayment term that works best for you. SBA Loans and other forms of institutional financing provide the most favorable rates & terms, if you meet all the mandated criteria and are extremely patient. However, think of all the opportunities you may be passing up by not being capitalized, while waiting for your SBA loan to fund.
Small Business Administration Brewery Loans (SBA):
SBA Loans are generally the least expensive financing option for craft brewery, microbrewery, taproom, and brewpub 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 brewery equipment and refinancing high-interest loans.
The Small Business Administration (SBA) offers myriad loan programs to help craft brewery owners obtain the necessary financing to either start a new brewery or keep existing breweries going strong. In most cases the SBA doesn’t actually disburse loans directly, but rather provides lenders with federal guarantees and backing. When you apply for an SBA loan you will be going through a financial institution like a bank or an SBA participating non-bank lender.
The SBA 7a Guaranteed Loan program is the SBA’s most common business loan program. The SBA guidelines define the maximum and minimum loan amounts, use of proceeds, and maximum interest rates as well as other specifications. The financial institution that is providing the actual funding may establish more specific requirements as well. However, SBA-backed loans are often characterized by lower down payments (i.e. less equity required from the borrower), lower interest rates, longer terms and more flexibility than other offerings. Further, they may be preferable from the perspective of the lender because of the federal backing. Because SBA loans provide a government guaranty, they may have more requirements from a borrower looking to qualify for such a loan. SBA 7a loans may be used to finance working capital, purchase furniture, fixtures, craft brewing machinery, brewery equipment, or purchase land and/or buildings. They may also be used for construction and renovations, brewery acquisitions, and the refinancing of existing debt. The maximum loan amount is $5 million. The business must meet certain size standards to be considered a “small business” (most businesses will qualify), be located in the U.S. or its territories, and satisfy certain other criteria. The business owner must be a U.S. citizen or legal permanent resident. SBA 7a loans are generally self-amortizing with either floating or fixed interest rates.
The SBA 504 Loan program is designed to finance fixed assets and stimulate employment through job growth or retention. The loans are processed through non-profit Certified Development Companies (CDCs) in conjunction with participating banks. Generally the borrower must inject between 10-15% of the cost of the project. The CDC issues bonds guaranteed by the SBA for up to 50% of the project cost (generally the debenture cannot exceed $5 million) and the participating lender funds the balance, taking a first lien position on the assets acquired. The eligibility requirements are similar to SBA 7a loans with the addition of proof that a certain number of jobs will be created or retained based upon the amount financed.
Reasons to Apply for an SBA Loan:
Least Expensive Financing - It would be tough to beat the low rates of SBA loans. SBA is an excellent option for craft brewery owners looking to keep financing costs down.
Great Financing for Growth - If your primary goal is to grow your brewery, microbrewery, taproom, or brewpub, getting an SBA loan is an excellent way to reach that objective. You get the funds you need on manageable terms.
Craft Brewery Equipment Financing & Brewery Equipment Lease:
A brewery equipment lease is in essence an extended rental agreement under which the owner of the brewery equipment allows the user to operate or otherwise make use of the equipment in exchange for periodic lease payments. In leasing terminology, the owner is the lessor, the user is the lessee. Brewery equipment finance by definition is any method of extending capital to businesses for the purpose of acquiring equipment. Financing methods include equipment leasing, SBA and other government loans, as well as sale-leaseback wherein the collateralized existing equipment to raise cash for additional purchases. Craft Brewery equipment financing is a common tool used by many brewery owners, as it can help improve cash flow and working capital. It typically involves a lender extending brewery equipment financing that is secured by a piece of equipment. Here are some of the many types of brewery equipment and brewery systems necessary to operate a successful brewery:
Bottling & Canning Lines
Brewery Installation Kits
Casks & Barrels
Clean In Place (CIP) Systems
Commercial Air Compressor Systems
Floors And Coatings
Fluid Control Systems
Keg & Barrel Handling Equipment
Maintenance, Repair and Operations Parts
Mobile Canning Units
Packers & Unpackers
Palletizers & Depalletizers
Piping And Racking
Sensors And Analyzers
Solar Array Systems
Spare Fittings, Valves & Gauges
Spare Manway Faskets
Spare Parts for all Systems
Spare Piping & Hose
Water Filtration Equipment
If you want your brewery to be successful, you have to produce quality beers and provide a welcoming atmosphere. Your ingredients, recipes, and equipment all play a huge part in how well the brewery will do. Brewery equipment financing may be the way to go.
Accounts Receivable Financing (A/R financing):
Accounts receivable financing is sometimes known as a ledgered line of credit or invoice financing, is a great solution for breweries that need more funding that is not available from traditional lenders. Many breweries need additional cash flow to support seasonal demands, growth, business opportunities, or solve a short-term cash need. Accounts receivable financing provides your brewery with flexible and immediate cash that will give your brewery the opportunity to grow, restructure, take advantage of supplier discounts, hire additional employees, or even to fund payroll. With our accounts receivable financing options, you can access cash without having to give up equity in your brewery, and it is less restrictive and expensive than equity financing. A/R financing can increase or decrease based on your current breweries size and needs, allows you to gain administrative support to manage your receivables without additional staff, and gives you access to cash when you request it (based on your eligible accounts receivable).
This type of asset-based financing allows breweries to get instant access to working capital without jumping through the hoops or dealing with the lengthy waits associated with getting a bank loan. When a brewery leverages its accounts receivables to boost its cash flow, it also doesn't have to worry about repayment schedules, and instead of focusing on trying to collect bills, it can focus attention on other core aspects of its business, brewing beer!
How Accounts Receivable Financing for Your Brewery Works
After you invoice your customer for goods or services completed you provide a copy of the invoice and supporting documentation. You then get advanced up to 90% of the eligible invoice to you, often within 24 hours. This accounts receivable financing process will free up valuable time and allow you to what you do best, service your customers, brew more beer and generate new business. Receivables management is proven to shorten payment turnaround time, which in turn, ensures better cash flow for your brewery and reduces interest expense. It also facilitates increased communication with your customers in a positive and professional manner, thus allowing you to stay on top of damaged goods, lost shipments, misplaced or disputed invoices, or keeping payments current. And, because this form of financing allows you to access more cash as your brewery grows, or less if you need less, you can ask us to either ramp up, or scale back as you deem best for your brewery.
Accounts Receivable Financing Highlights:
1. Primary Transaction Size - Start-Ups to $5 Million
2. Business Credit Type - Accounts Receivable Invoice Financing
3. Advance Formula - Up to 90% of Eligible Accounts Receivable
4. Advance Frequency - Weekly (or as often as daily)
5. Services -
Customer credit reviews for new and existing customers
Collection services (in some cases)
Customized management reports
6. Accounts Receivable Financing Benefits -
Flexibility, the line can increase as your brewery grows, and can decrease when you choose
Make it easy to transition back to conventional banking
Make paying off loans and making payroll worry-free
Allow you to meet seasonal demands
Give you the opportunity to reinvest in business and fund marketing to grow your brewery
Receivables management allows you to focus on your core business, brewing beer
Allows you to take advantage of volume or early payment purchase discounts
7. A/R Benefits -
Fast response time
Proposal turnaround within one day
Closing in as early as 7-10 days
Cash for invoices within 24 hours
What is the difference between accounts receivable finance and a bank loan?
Accounts receivable financing is a quick, flexible way for your brewery to generate cash flow. Here is how accounts receivable finance differs from a bank loan or line of credit:
Accounts receivable financing is not a loan. You assume no debt. However with a bank loan you repay principal and interest on your loan.
In accounts receivable finance rates can be adjusted throughout the lifetime of the financing program. Using a bank loan your annual percentage rate is locked long-term.
With accounts receivable financing the amount of money you can finance grows as your receivables grow. In contrast using a bank loan, the money you borrow comes with a cap or a limit.
Asset Based Lending:
Credit Type: Line of Credit
Primary Transaction Size: $500,000 to $7.5MM
Asset-based lending (ABL) is a great solution for craft breweries that have needs that are outside the realm of what traditional banks can offer. Whether it’s greater leverage, softer covenants, or more flexibility, asset based structures can be customized to meet the needs of each individual brewery. Asset based lending provides a line of credit based on your breweries eligible:
Accounts Receivable (A/R)
Machinery & Equipment
Asset-based lending offers more flexibility than other methods of financing, and is a fast and cost-effective way to obtain working capital. Unlike certain types of structured financial products, with an asset-based lending relationship, you do not have to give up equity in your craft brewery. ABL gives your brewery the flexibility it needs to grow, recapitalize, take advantage of supplier discounts, buyout shareholders, or even to fund payroll. It can increase or decrease based on your current breweries size and needs, and you’ll have daily and weekly access to your line of credit when you request it.