Brewery and Distillery Financing: Essential Tips for SMBs

Assessing Your Financing Needs

Before exploring options for small business loans for breweries and distillery financing, you should understand what your specific financing needs are. This will give you a general idea of how much capital will be required to achieve your business goals. Each entrepreneur’s financing needs will depend on many factors including the type of establishment they are interested in operating, their current financial position, and their short and long-term business goals.

Before sitting down to create a formal business plan or budgets, document some basic information about the new beverage business you’d like to invest in. Make a preliminary business model, deciding where and how you’d like to make beer or spirits, if you plan to package and sell your product in stores only, if you plan to serve the public, and if your considering adding additional services or products, like wine, food, or craft beer making workshops.

Location – Consider the city and state where you’d like to open your new business. This will affect the costs of real estate, marketing strategies, and government assistance programs, distillery loans or brewery grants that you may be eligible for.
Type of establishment – Put some thought into the type of beverage business you’d like to fund. Some popular choices include distillery bars, microbreweries, cognac houses, taprooms, and brewpubs.

Once you have the basic details organized, it will be easier to start calculating how much money it will take to fund your new business. Some expenses you might need a distillery or brewery loan for include permits and licenses, real estate and necessary renovations, equipment, and distribution.

Traditional Financing Options

As the financial planning and budgets come together, it may be obvious that to turn your dream into a reality, you will need to secure either distillery funding, craft brewery financing, or both. Fortunately, there are several traditional brewery and distillery financing options to choose from when it comes to financing your dream.

Term loan

A term loan is a traditional arrangement where the borrower receives a lump sum of money upfront and agrees to repay the loan according to the repayment terms. Term loans can be either secured with collateral or they can be unsecured, where no collateral is required. Borrowers may still be required to attach a personal guarantee or provide a down payment for unsecured distillery loans.

SBA loan

SBA loans are a business financing option where the funds are partially guaranteed by the U.S. Small Business Administration. There are several different SBA loan programs, but the SBA 7(A) Loan is the most popular financing in the craft spirits industry because, if approved, borrowers can get up to $5 million to use for working capital, equipment, and securing real estate.

Alternative Financing Strategies

Traditional funding sources, like the term loans and SBA loans available through banks, credit unions, and online lenders may not be a great fit for every entrepreneur. Depending on a borrower’s business plan, creditworthiness, and financial health, one of the following alternative brewery and distillery financing sources may align better with your goals.

Crowdfunding

Crowdfunding for craft breweries and distilleries can be a way to raise capital without a bank loan. It works when an individual, or business owner, collects many small contributions from different investors or donors. Most crowdfunding is done using platforms like GoFundMe or Kickstarter.

Business line of credit

A business line of credit is not a loan, but it is a type of revolving credit that works like a business credit card. Approved borrowers are awarded a maximum credit line and can then draw on that credit line anytime they need capital for large purchases, upgrades, or working capital. When the balance is repaid, the funds become available again.

Partnerships and Joint Ventures

Part of the financial planning that goes into owning and operating a craft beverage establishment is considering what ownership structures you are open to. If you have any financial concerns or feel you would benefit from additional support, you may want to consider a shared business structure like a partnership or a joint venture (JV). Sometimes considering these options can even open up venture capital for breweries. In a partnership, two or more people enter business for an undefined amount of time, have predetermined ownership percentages, and usually form a designated entity. On the other hand, JVs are typically started for a specific purpose of blending complimenting resources. The responsibilities, profit-sharing expectations, term and length of the agreement and ownership percentages are all clearly defined in a joint venture agreement. Both business structures can offer significant financial relief and shared resources, which makes this one of the top brewery and distillery investment strategies.

Leasing vs. Buying Equipment

The costs of equipment needed to start a brewery or distillery of any type can be overwhelming. Some necessary equipment may include kegs, boilers, fermentation tanks, refrigerators, canning lines, bottling equipment, and labeling machines. Depending on the amount of available startup capital, some beverage entrepreneurs may benefit from leasing all, or some, of their equipment, while others will still prefer to purchase their equipment outright.

Leasing equipment allows the small business owner to have the necessary equipment to operate without coming up with the entire expense upfront. There are cash flow advantages as well as tax deductions for leased machinery and equipment. Some manufacturers will offer direct leasing options or be able to recommend a third-party leasing company.

Buying equipment requires a larger investment upfront, but has several benefits including tax deductions, increased net assets, and no lease renewals. If you are leaning towards purchasing equipment but are concerned about the upfront costs, consider equipment financing. Asset financing in distilleries offers lower interest rates than traditional bank loans because the equipment acts as collateral on the debt, making it a lower risk for lenders.

Conclusion

Don’t let your goal of opening a brewery or distillery become a pipe dream. With the right planning, you can find the brewery and distillery financing that can make your dream a reality. Whether through traditional loans, alternative financing, or strategic partnerships, a well-planned funding strategy will help you achieve your goals and thrive in the craft beverage industry.

FAQ

What are the initial steps to secure financing for a new brewery or distillery?

Start with creating a business plan that includes startup costs and projected earnings. Then, explore both traditional and alternative financing options.

How do I determine how much funding I need for my brewery or distillery?

Gather approximate costs for licenses and permits, equipment, operating costs, location, and materials. Use those figures to create a detailed budget.

Are there specific types of loans that are best for breweries and distilleries?

SBA loans and traditional bank loans are commonly used. SBA loans offer favorable terms, while bank loans require strong credit and collateral.

What alternative funding options are available beyond traditional bank loans?

Consider crowdfunding, partnerships, joint ventures, or equipment financing.

What are some common mistakes to avoid when seeking financing for a brewery or distillery?

Most people underestimate how much things will cost, so be sure to get accurate cost information. And don’t just rely on a business plan that is “in your head”—make sure to put it down on paper and stick to it. Lastly, many people are intimidated by the thought of financing, but if you explore all brewery and distillery financing options, you may be surprised by finding something that fits your needs.

Frequent searches leading to this page

business loan, brewery financing, brewery startup financing, restaurant financing

Brewery and Distillery Financing: Essential Tips for SMBs

Assessing Your Financing Needs