Personal cash, capital raised by investors, financing from commercial banks – there are several financing options when starting or expanding your brewery or distillery, and you may find yourself overwhelmed with the choices. While all of these options can help you obtain the capital you need to achieve your goals, you may find that not all of them will be available to you in your personal situation. Instead of allowing financing to stand between you and your dreams, consider an SBA loan.
For those eligible, Small Business Administration (SBA) Loans are an attractive financing option due to the government guarantee. As a result, lenders are more likely to approve these loans, and borrowers who receive them often benefit from lower capital requirements and more flexible terms.
SBA loans are one of the most popular financing options for new brewery owners, but due to the government guarantee, you will encounter additional documents and information required. Before connecting with a potential lender, familiarize yourself with the process and the best tips for navigating it as easily as possible.
Step 1: Application
Your lender will have very specific requests during the application process, and it’s best to be prepared. The first crucial elements are your business plan, with reasonable projections and assumptions, and information about your personal finances. You will also need to complete the application required by your lender.
You may be asked to provide a management profile that details which of your team members will oversee different sections of the business, such as drinking room management, beer brewing, or spirits manufacturing.
You may also be prompted to answer questions about the location you selected. Are you planning to set up in a commercial area with high traffic or in an industrial park? Are there several breweries or distilleries around you, or do you have the advantage of being the only one? Is there room for expansion? Demographic details are crucial to the funding you may receive, and it helps to be as specific as possible.
To avoid delays, make sure you have a selected location, a letter of intent to lease or purchase, and a complete business plan before approaching a lender. Navigating the application process can be time-consuming and tricky, and being prepared with these things in advance can get things going.
Step 2: Subscription
Once all the information required for your application has been received, the subscription process can begin. During this time, your lender will perform a thorough review of the information you provided to determine your strengths, weaknesses, and loan eligibility.
Be prepared for your lender to call you to discuss your business plan, owner management experience, projections and assumptions in more detail. Your projections and assumptions will be thoroughly reviewed, so accurate and complete documentation is crucial. If your forecast isn’t clear, your lender may ask you to revise the application to include additional details, which could set you back weeks or months.
Step 3: Closing
At this point in the process, you can expect to receive a list of closing conditions required before the SBA loan can be closed. Your lender will also schedule a call with you to go over the list of closing conditions and assign responsibility for each requirement. This call is very important as you will both be discussing the details of your commercial insurance, building contracts, architectural plans, TTB federal permit and more.
To avoid delays, decide who you will use for construction-related tasks during the underwriting process. This may include finding a contractor, designer, architectural partner, and engineer. Although the process for an SBA loan is longer than that of conventional loans, you can shorten the time frame if you are well prepared.
Step 4: Funding
Once all of your closing conditions have been met, it’s time to close your loan. You will most likely enter into a multiple installment agreement where your funds will be distributed in controlled installments as the construction of your brewery or distillery progresses.
It is generally best to work with qualified professionals who have relevant industry experience to complete your construction project. Misinformation submitted by a contractor or anyone else could result in a funding request being returned, delaying the construction process. A skilled team of experienced craft drink builders will prove to be very beneficial.
Getting financing for your brewery can be a frustrating experience, but SBA loans are available to help you overcome this hurdle. To maximize your chances of a smooth process, familiarize yourself with these steps and requirements ahead of time and work with a qualified lender. By being carefully prepared and using someone with relevant experience, you can get the financing you need to start producing the craft beer of your dreams.
Rick Sayward is Vice President of United Community Bank’s craft beverage lending business.