Are you a brewer? Whether you want to open a craft brewery or a microbrewery, or aim to compete with huge competitors like Anheuser-Busch, you’re going to need brewery financing.
Even a successful brewery will need financing options to cover unexpected costs and be able to move quickly on limited-availability items. Financing will also help if you need to suddenly replace specialty brewing equipment, like canning lines to make quality beer.
How do you Fund a Brewery?
Starting a brewery can be a costly endeavor, and securing financing is an important step in the process. It’s important to note that each financing option comes with its own set of pros and cons, and it is essential to carefully evaluate each one before making a decision.
When considering financing a brewery, it’s vital to understand the terms and conditions and interest rates and make sure you’re able to make the payments on time.
And keep in mind that taking on debt can be risky. It is essential to consider the potential impact it may have on the business’s cash flow and overall financial stability in the long run.
Plus, always keep in mind that the only good financing is the financing you can actually get. An ideal type of financing that you and your brewery will never qualify for is about as useful as expired hops.
But there are choices out there that do not involve bootstrapping your brewing business or pinning all your hopes on crowdfunding. You won’t have to take out a personal loan (unless you want to, of course).
Many of these options are not just good for getting money now. They are good for helping your brewery get financing in the future. In particular, corporate credit will help you get money long after you have fulfilled your first need for financing.
Funding Option 1 – an SBA Loan
The Small Business Administration (SBA) offers a variety of loan programs, including the 7(a) loan program, which is designed to help small businesses access credit. SBA loans may have more favorable terms and lower interest rates than traditional bank loans.
However, to qualify, a brewery must meet certain criteria and the process of getting approved can be lengthy.
The SBA has several documentation requirements, so it’s important to have a solid business plan, as well as a clear understanding of the costs and requirements involved in starting and operating a brewery, to show to the lender.
Getting such a loan will probably not be possible for beer lovers looking to get in and get out quickly. SBA lenders have several requirements, so they will want to see you have invested in your business in addition to their requests for paperwork.
The SBA will want to see records of your cash flow, whether you have paid taxes, and more. Craft breweries will do well to hire a professional to prepare profit and loss statements and tax returns.
The SBA will also want to know if there are any liens on your equipment, even though this technically isn’t brewery equipment financing.
Funding Option 2 – Business Credit Cards
Many major card issuers offer business credit cards with rewards and benefits tailored to the needs of small businesses. These cards can be a great way to finance small expenses and build credit for your brewery.
But you can’t get a business credit card at all if your brewery business is not set up properly. Furthermore, business credit is the kind of credit score you will need to build. It won’t happen semi-automatically, like with personal credit.
When you’re considering how to build business credit, your first step is to improve your brewery’s Fundability™. In essence, this is setting up your microbrewery with proper licensing, incorporation, and more.
The best part about Fundability™ is that it can help your craft brewery get other types of funding as well. So a credit card is helpful, and if it is attached to your brewery’s EIN, rather than your Social Security number, it will help you build business credit.
In general, the best use for credit is to pay for smaller day-to-day expenses of your brewery, just like any other small business. Buy items like computers, phones, thermometers, gloves, and the like on credit. Pay the bill on time, and your small business credit scores will rise.
Funding Option 3 – Equity Investors
One form of investor is angel investors. An angel investor is often a wealthy individual who provides capital to startups in exchange for equity in the company. This can be a good option for those who have a solid plan and can provide a clear path to profitability.
But an angel investor doesn’t have to be wealthy. They can be a family member or a friend, too.
A truly cutting-edge brewery might even attract venture capital. For those looking to start a larger brewery or open multiple locations, venture capital may be a viable option. This type of financing option is provided by investment firms looking for a high return on their investment.
Financial results are everything to them.
In both instances, you are giving up a percentage of the equity in your brewery. This means sharing the profits. And it also means others will have some decision-making power. For an incorporated small business, that means seats on the board of directors.
If you, the business owner, want to go this route, recognize that either type of financing may demand a look into your books. So, having them prepared professionally and following standard accounting principles is vital.
But at least you don’t have to pay back this financing unless you want to regain control.
Funding Option 4 – Brewery Equipment Financing
Brewery equipment financing can be a good choice for small brewery finance for a craft brewer who is just getting started. Essentially, you are able to finance the purchase of equipment, like with a car loan.
If your brewery requires significant equipment purchases, equipment financing may be a good option. This type of financing allows you to purchase equipment and pay for it over time, rather than having to pay for it all upfront.
Under this sort of financing arrangement, the brewery equipment serves as the collateral for the brewery loan. Hence if the craft brewery does not have other assets which can serve as collateral, they can still get working capital.
Craft beverage producers do not need to own land or a building to get this form of craft brewery finance. Lenders will likely take out a UCC blanket lien on the equipment.
And while it can make it easier for craft brewers to afford what they need to make beer, it comes with a downside. If you default on this kind of brewery financing, you could end up losing your brewery equipment.
And if you can no longer make craft beer, your business can go bankrupt very quickly.
Funding Option 5 – a Small Business Loan From a Bank or Online Lender
One popular option for brewery financing is bank loans. Bank loans can provide breweries with the capital they need to start or expand their operations, but they also require the brewery to pay interest on the loan.
When we think of any form of business lending, we tend to think of these kinds of loans first. Just like any other type of business, breweries can get term loans.
Banks and other lending institutions often offer small business loans to those looking to start a brewery. These loans can be used to cover expenses such as equipment, inventory, and operating costs.
Banks typically require a solid FICO score, a detailed business plan and financial projections, and collateral to secure the loan.
They can come with better interest rates and a lower monthly payment as well. The craft breweries most likely to get this kind of brewery financing are the ones where the owner has good personal credit.
Alternative lending is another option. There are also alternative lending options such as online lending platforms and peer-to-peer lending. These options may offer more flexible loan terms and faster approval times, but they may also come with higher interest rates.
But never forget to investigate online lenders—just in case.
Funding Option 6-Grants From the Brewers Association
The association provides a few types of grants—research and service, DEI mini-grants, and travel grants. This is a form of financing that does not have to be paid back. But there’s often stiff competition and not a lot of money on offer.
Still, it’s far better than nothing. Just, don’t rely on it for all of your funding.
The association’s research and service grant is generally for research into sustainable practices and supply chain priorities. Funding priorities include hop and barley research, draught beer quality studies, and sustainability-related projects. But all projects are considered for funding.
A DEI mini-grant is for up to $5,000. One of the goals of these awards is to leverage the strengths of the craft brewing community to fight injustice, eliminate disparities, and provide solutions to an array of challenges that impact those who produce and enjoy craft beer.
A travel grant is for a brewery worker to be able to attend the association’s Craft Brewers Conference. They will cover eligible expenses (like lodging and airfare), up to $1,500. This grant is awarded by the association’s DEI committee.
It’s intended for individuals employed by a Brewers Association member brewery-in-planning or brewery that produces less than 15,000 barrels.
If you want to make keg beer, then consider your financing choices wisely.
There are a lot of options! Credit Suite can help you navigate all of your choices to determine where you are most likely to succeed in your financing endeavors. And we can help you improve Fundability™ so you can have even better choices.
Contact us today and we’ll go over it all together.