The Challenges and Opportunities of Financing Growth

Craft breweries face several growth challenges, such as sourcing viable financing options for expansion, working capital and new equipment purchases. However, there are also some tremendous opportunities available to craft breweries seeking the capacity to grow.

Reinvesting Profits

Financing growth usually means reinvesting all profits back into the company leaving minimal if any working capital on the balance sheet. Strong demand is a two-edged sword since you may have demand for more than you can produce, but still not have operational efficiencies to keep up with current needs.

Capital for New Equipment

With the current high demand for equipment, lead times between placing a deposit for an order and receipt of that equipment can be six to nine months or even more, excluding installation.

Finding capital to make that deposit knowing you will not benefit from the use of the equipment for up to a year can be difficult. Most lenders require interest payments during this period if not principal as well. If the term is determined by depreciation schedules instead of appraised useful life, the debt service can be prohibitive.

Financing Production Facilities

Controlling your production is a crucial competitive advantage. Contract brewing often comes with operational inefficiencies and increased costs as opposed to owning the production capacity. Owning gives producers absolute quality assurance and increases timely delivery of the product. Owning production capacity can also generate additional flows of revenue by offering contract production, warehouse storage, etc.

Acquisitions and Buyouts

Partner buyouts and business acquisitions can be problematic especially if there are not enough assets to collateralize a loan or insufficient cash flow multiples to attract an equity investor. Goodwill and intangible assets on the balance sheet are difficult to value, if at all, and have limited or no collateral value.

Complexities of Construction

Construction financing is a specialized area due to the intricacies of advancing funds during the process and making sure all liens are properly secured. Many banks don’t provide these as they do not do enough volume to justify the investment in personnel and systems. If a bank does provide construction financing, they often focus on generic types of construction avoiding specialty projects such as beverage production facilities.

Leasehold Improvements

Most banks will not finance leasehold improvements. The equipment, retail and warehouse components of a beverage production facility further complicates matters, significantly narrowing the pool of qualified lenders.

Collateral and Equity

Conventional lenders need collateral and balance sheet equity to extend credit; something that is usually in short supply while expanding. They need this security because they don’t get paid to take the risk. A solid bank will generate a Return On Asset in the 1.75% range. To put this into perspective, equity investors look for returns of 30% or greater.

Investors and Partners

Equity investors can be a good source of capital during expansion phases as they are banking on future cash flows and sharing in future profits.  The right equity investors can also bring intangible value in the form of industry experience and beneficial industry relationships.

Growth through SBA Loans

Unique growth opportunities are available to craft breweries through the Small Business Administration (SBA) loan program. SBA loans are an alternative that quite often fills the gap between the equity phase and conventional lending phase.

SBA 7(a) loans can greatly minimize or eliminate down payments or the need for equity. Use of proceeds can be used for expansion, acquisition, construction, leasehold improvements, real estate and equipment purchases. This unique small business lending platform is available to many craft breweries through banks who specialize in cash flow lending.

Jeff Clark began his wine and craft beverage lending career in 1993 in Napa Valley. He works with wineries, breweries, and distilleries throughout the United States. His experience spans the spectrum from small, family-operated businesses to large syndicated deals and publicly traded companies. Visit to learn more.

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