Editor’s Note: Scott Birkner is the senior vice president and manager of the craft beverage lending division at United Community Bank. During a 20-year career in banking, Birkner has become an expert in helping startup beverage companies secure Small Business Administration (SBA) loans of varying amounts — often $1 million or more.
In his column for Brewbound Voices, Birkner provides a roadmap for new brewery owners who are just starting their capital raising process and addresses important questions brewers need to consider before working with a lender.
Brewbound Voices: 10 Questions Startup Brewers Should Consider Before Choosing a Lender
As a passionate brewer, you have an intimate understanding of your beer. You know exactly when to add hops to your crowd-pleasing IPA, which yeast strain will produce an elegant saison, and whether or not a stout will sell in September. This type of knowledge sets you up for success and allows you to provide drinkers with the beers they want to consume all year long.
And when you’re ready to go pro, you’ll likely need to secure bank financing to open your brewery. For most – if not all – craft brewers, finding startup capital is a potential hurdle to launching an exciting new business. However, thanks to the country’s appetite for craft beverages, financing is there.
But craft brewers are experts on their brews, not their books, and navigating that first financing experience can be frustrating. That’s where an experienced lender can come in and be that quarterback you need when it comes to securing funding.
SBA loans are a great area of opportunity for craft brewing businesses, and those loans often require extra assistance with the amount of paperwork and information needed. Thankfully, due to the explosion of craft brewing in the past several years, there are now lenders who can speak your language and be a partner throughout the process.
However, before you select a lender, and apply for your loan, there are some very crucial questions to consider. Thinking through these details at the beginning can help you identify which lender is right for you, and this is critical, because having the right financial partner is key. Use these questions as a guide when you think you might be ready to seek outside funding to start your business.
- How much money are you going to need? Be realistic and precise with this amount. Don’t take on a larger loan than necessary; don’t take so little that you end up quickly needing a second loan.
- What is the money going to be used for? Lenders will need specific details about how you plan to use your funds. Look for a bank that offers the type of financing you need, whether it is for startup, expansion, equipment purchase, acquisitions, partner buyouts, commercial real estate, refinancing, working capital and other potential business initiatives. Not all lenders will cover each of these, so identifying your need is a necessary first step.
- How will the loan affect your personal financial position? Be realistic about this – don’t pursue financing if it will be too great of a risk for you or your family.
- How will you secure the loan? This may be self-explanatory – but be prepared to address this. In most instances, personal collateral may need to be pledged for a start-up loan.
- When will the money be needed and when will it be repaid? Do you have a hard deadline to get equipment or secure your space? Make sure that is outlined at the beginning of your financing journey. Have a plan for repayment, with a feasible schedule that will not be a hardship on your operations.
- Are your projections reasonable and supported by detailed assumptions? Accurate and comprehensive documentation is crucial to getting your loan approved in a timely and efficient manner. Your projections should be broken down monthly and for the first three years. Lenders can help navigate you through the process, but it all goes much quicker if you have your information ready at the outset.
- How will alternative possible outcomes affect your repayment ability? No one wants to think of those worst-case scenarios, but like a rain plan, it is best to be prepared. Repayment can’t solely depend on a “perfect” business situation.
- What risk management measures have been or are to be implemented? There are risks in every business and that is why smart business owners temper their optimism with the reality of managing risk. Proper Insurance, temporary location in the event of a loss, employee turnover, safety, cyber security are just a few. A comprehensive risk analysis should be performed to determine your own level of exposure.
- What have been the trends in the industry’s key financial position and performance indicators? With a strong presence across the 50 states and the District of Columbia, craft breweries are a vibrant and flourishing economic force at the local, state and national level. As consumers continue to demand a wide range of high-quality, full-flavored beers, small and independent craft brewers are meeting this growing demand with innovative offerings, creating high levels of economic value in the process. The craft beverage industry has a benchmark of key performance indicators (KPIs) that can be used to set realistic goals and targets.
- How will you repay the loan? Make sure you have a concrete plan to pay off the loan; don’t take on this debt without a clear plan to get back in the black.
Once you’ve worked through these questions, and are ready to meet with potential lenders, make sure to prepare a well-thought-out business plan with reasonable projections and assumptions. That is the number one item a lender will want to evaluate once you’ve met. Be prepared to share your owner-management experience or related business experience to operate this specific business. Your lender needs to trust your background. Location plans also tend to be extremely important to a potential lender, so be prepared to discuss those plans and all potential pros and cons.
On the money side, the most crucial elements the lender will look at are:
- Capacity to repay the loan;
- A detailed explanation of the total project costs;
- Capital to work with and its sources
An experienced lender will need the above information when evaluating if they can help you with your business goals, and determining what loan is best for you. If you come to the table having thought through these questions, you can find the right lender quicker. That individual can get to work identifying the right loan and guiding you through the application process and you can get back to focusing on what you know best – the brew.
About the Author:
Scott Birkner currently serves as a Senior Vice President and Manager of the Craft Beverage Lending Division of United Community Bank. His financing abilities continue to encompass start-ups, expansions, refinances, partner buyouts, commercial real estate, and business acquisitions on a nationwide platform.
Scott began his finance career working for Unity Bank and learned all facets of banking. During that time, he held progressive positions beginning as a loan underwriter, collector, retail banker, regional sales manager and commercial lender, learning the business from the inside out. His next move was to be a SBA Business Development Officer where he assisted business owners in attaining financing for every aspect of their business’ life cycle. His portfolio included projects ranging from $350,000 to $13,000,000.
Scott continued with his SBA career where he served as a Vice President, Senior Business Development Officer for HVC Bank, United Western Bank, Fifth Third Bank, Bank of North Carolina (now Pinnacle) and Yadkin Bank (now First National Bank) spanning 20 years.
Scott is also a member of the Brewers Association, American Craft Distillers Association, North Carolina Brewers Guild, Alabama Brewers Guild, Florida Brewers Guild, Mississippi Brewers Guild, Ohio Craft Brewers Association and Texas Craft Brewers Guild. Because of his level of experience and expertise, Scott is a frequent speaker, panelist and moderator at commercial real estate events, lending conferences, seminars and SBA industry training.