Need financing for your brewery? Try an SBA Loan Application with These Tips
Personal cash, capital raised by investors, commercial bank financing – there are several financing options when starting or expanding your brewery or distillery, and you may find yourself overwhelmed by the choices. While all of these options can help you get the capital you need to achieve your goals, you may find that not all of them will be available in your personal situation. Instead of letting financing be a roadblock between you and your dreams, consider an SBA loan.
For eligible people, Small Business Administration Loans (SBA) are an attractive financing option due to the government guarantee. As such, lenders are more inclined 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 come across some additional documents and information needed. Before you connect 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 demands 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 the members of your team who will oversee various sections of the business, such as managing the tasting room, brewing beer or making spirits.
You may also be prompted to answer questions about the location you have selected. Are you planning to set up in a commercial area with heavy 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 can receive, and it helps to be as specific as possible.
To avoid delays, make sure you have selected a 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 in advance with these elements can get things done.
Step 2: Subscription
Once all the information required for your request 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’s management experience, projections, and assumptions in more detail. Your projections and assumptions will be carefully scrutinized, so accurate and complete documentation is crucial. If your forecast is not clear, your lender may ask you to review the request to include additional details, which can delay you for weeks or months.
Step 3: Closing
At this point in the process, you can expect to receive a list of required closing conditions before the SBA loan closes. 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, construction contracts, architectural plans, Federal APC 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 timeframe if you are well prepared.
Step 4: Funding
Once all of your closing conditions are met, it’s time to close your loan. You will most likely enter into a multiple disbursement arrangement in which your funds will be distributed in the form of controlled disbursements as the construction of your brewery or distillery progresses.
It is generally best that you work with qualified professionals who have relevant industry experience to bring your construction project to fruition. Misinformation submitted by a contractor or anyone else could potentially result in the return of a funding request, causing a delay in the construction process. A qualified team of experienced builders in the craft beverage field will prove to be of great benefit.
Obtaining 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 well prepared and bringing in someone with relevant experience, you can secure the financing you need to start producing the craft beer of your dreams.
Rick Sayward is vice president of United Community Bank Craft Beverage Loan Sector.