The Complete Guide to Brewery Financing & Loans
Dreaming of starting your own brewery? One of the first big decisions you’ll face is whether to start from scratch or buy an existing one. But then comes the tricky part—figuring out the financing. Getting a loan for an existing brewery can come with a lot of challenges, and sometimes, it’s actually easier to start fresh.
If you’re wondering what’s involved, let’s break down the ins and outs of brewery financing and what you should think about before making your next move.
Brewery Financing
Having enough capital can make your dream brewery business come true.
However, it’s safe to say that most business owners don’t have idle money sleeping in their bank accounts.
More often than not, applying for financing is the most accessible way to meet the needed capital requirements to start a new brewery business or purchase an existing one.
Here are ways for you to access financing:
- From family or friends: Perhaps borrowing money from people you know is the easiest way. There is no unnecessary red tape or many requirements to submit just to get a loan. And most probably, the quality of your relationship with them will determine if they’ll agree to lend you money for your brewery business.
- Banks: If you don’t want to borrow money from family or friends, try applying for a bank loan. Applying for a bank loan can be tedious since you need to convince the bank why they should lend you money. They’ll also examine your credit history and assess if you’ve been keeping up with all your debts from mortgages or credit cards. Hence, your approval highly depends on your creditworthiness and the purpose of your loan.
- SBA loans: If you feel that applying directly to the bank has a low chance of success, you can apply for an SBA loan. Financing via SBA loans can be more accessible, especially if you think that your credit history could be better. With the SBA backing the loan and reducing lender risk, lenders may be inclined to give you a loan amid some imperfections in your credit history. However, while the SBA backs these loans, approval is not guaranteed.
Buying an Existing Brewery
Getting financing for an existing brewery can be challenging when buying one. You have to realize that you’re already buying an existing business. Hence, it’s part of due diligence for lenders to ask for the business’ financials and, more importantly, its cash flow. Lenders are cautious in extending credit to companies that don’t have a proven track record of stable cash flow and profitability.
Moreover, if the brewery business you’re acquiring is struggling with cash flow, that’s like a waving red flag to most lenders. No one would want to extend credit to a business that can’t generate enough cash flow.
Hence, those are the reasons why buying an existing brewery business can be challenging. Unless you can prove that the existing brewery is profitable and liquid, apply for financing by all means. Otherwise, we think it’s not worth the risk.
Starting a New Brewery
Buying an existing brewery has a lot of obstacles to the point that if the brewery isn’t performing well, it’s best not to dip your toes in that business. Instead, why not start a new brewery business from scratch? We understand that it can be pretty hard to do, especially if you’re not familiar with the administrative aspect of a company. But let’s take it step by step first. Let’s first talk about financing a new brewery.
To cut to the chase, you’re at an advantage. Yes, you read that right. Lenders are more inclined to extend credit to new breweries than existing ones. But don’t get your hopes up yet. Though you have a slight advantage, lenders will still conduct their due diligence procedures. Since this is a new brewery, lenders will ask for a business plan.
The business plan shows the roadmap of your brewery business. It contains your financial projections, operational strategy, market analysis, and business model. Lenders will use your business plan to assess whether to grant you financing. That’s your advantage over existing breweries.
In a business plan, you’re talking about financial projections, which are only estimated amounts of the expected future performance of your brewery business. Lenders see it as a positive sign if you project stable cash flow and growing profits for your business.
However, in an existing brewery, lenders will look at financial statements containing information that has happened already. Think of it as a business report card. If the income statement is at a loss, that’s a done deal already, and lenders see that as a red flag.
Need Help in Getting a Loan?
As discussed earlier, new brewery businesses have the upper ground in financing compared to existing ones. It’s primarily because existing businesses already have results of operations, and lenders will most likely use past performance as the basis for future performance.
But with new brewery businesses, you only need a good, solid business plan that’ll encourage lenders to extend your credit. We’re not talking about giving them unrealistic and overly optimistic projections. Instead, you should have a concrete business plan with a good business model that supports your financial projects.
Need help in making a business plan with financial projections? We’re here to help!
At U-Nique Accounting, our team of experienced brewery accountants can help you create a solid business plan that makes a great impression on lenders. We understand that running a business might not be your area of expertise, but if you share your vision with us, we’ll help turn it into a professional, formal business plan.
You can contact us by using the calendar below to get started.
Until next time!
By MATT CIANCIARULO
