Financing a Craft Brewery Through SBA Guaranteed Loans

Often times, it is difficult for a startup to receive loans from local, regional and national banks. The Small Business Administration has become an alternative option for startups to receive funding. The Small Business Administration was founded on July 30, 1953, and provides loans, loan guarantees, and other assistance to small businesses. The SBA has a variety of programs depending on the needs of the borrower. Two programs that have been helpful for small craft breweries are 7 (a) and CDC / 504.

The SBA 7 (a) is the most common loan program. To be eligible for assistance, businesses must meet certain criteria. The business must be for-profit and small. The definition of “small” varies by industry and is based on that industry’s size standard. The small business size standard represents the largest size a business can be to remain classified as small and is indicated by the number of employees or average annual revenue. Brewery size standards for number of employees is 1250. The business must also be in the United States, have reasonable invested capital, have alternative financial resources, and use the funds for a sound business purpose. There is also a list of ineligible businesses on the SBA website. The 7 (a) loan can be used for a variety of financial and business purposes. Some of these include short-term or long-term working capital, purchase of equipment, machinery, furniture, supplies, or materials, purchase of real estate, construction of a new building, refinancing of existing business debt, or establishing a new business. The SBA does not establish a minimum loan amount, but has a maximum loan amount of $ 5 million. Fees vary depending on the amount of the loan. They can range from 0% for loans of less than $ 150,000, 3% for loans of $ 700,000 or more, and up to 3.75% for loans of $ 1,000,000 or more. Interest rates are negotiated between the applicant and the lender and can include both fixed and variable interest rates. The SBA can guarantee up to eighty-five percent of loans up to $ 150,000 and seventy-five percent of loans over $ 150,000.

CDC, community development corporation, is a non-profit organization incorporated to provide programs and participate in other activities that support community development. The CDC / 504 loan program is used primarily to provide financing for major fixed assets. This may include the purchase of land, existing buildings, construction of a new facility, building improvements, or long-term equipment. It cannot be used for working capital or inventory. This loan is good for a brewery that is only seeking funds for brewery equipment or building improvements. For a CDC / 504 program, a partner bank will provide 50% of the loan, a CDC will guarantee another 40% of the loan, and the remaining 10% is borrower equity. However, in some circumstances, the borrower may be required to contribute up to 20%. Loan amounts are determined by how funds will be used and rates are fixed. Unlike 7 (a), the CDC / 504 is limited in what can be used and may not be the best option depending on what the brewery needs the funds for.

There have been some breweries that have been successful in using the SBA to obtain loans. One in particular is Upstream Brewing Company. Upstream Brewing Company was able to obtain an SBA guaranteed loan from a national bank for $ 750,000 to pay for a new brewhouse, equipment and furnishings for a new location in Omaha. They were successful for many years and when they were ready to renew their lease, they considered buying the property outright. Upstream Brewing Company approached another SBA approved lender for a 504 loan. They were able to be approved for a $ 1.4 million 504 loan in 2012 to purchase the location. Brain Magee, president and owner of Upstream Brewing Company, said that without the help of the SBA’s 504 loan program, it might not be a stretch that the Upstream Brewing Company’s West Omaha location would have disappeared from the scene.

According to information in “Business Financing,” by Steven Rogers, there are several ways to improve your chances as a business owner of obtaining an SBA-guaranteed loan. One way to do this is by making sure you have a good credit history and no personal financial problems. Having a great business plan that outlines realistic goals and forecasts can increase your likelihood of receiving a loan. Utilizing other services and programs, such as Small Business Development Centers (SBDCs), SCORE, and Small Business Learning Centers, can help with administration and technical assistance, business plan preparation, and planning tools. training.