Expanding Your Brewery Through Industry-Focused Financing
By Keith Merklin, General Manager of Craft Brewery Lending at Live Oak Bank
Growth is a challenge that every craft brewery faces at one point or another. It’s an inescapable truth and pivotal point in the life of your business. While your passion to continue producing amazing beers for customers may be at an all-time high, you find yourself simply not being able to meet market demand due to operational limitations. In essence, you have become a victim of your success.
What do you do? The obvious answer is to expand. Build a new tasting room, add on to your existing facilities, or increase capacity by purchasing more and better equipment. However, investing your hard-earned money into these capital-intensive assets and projects can be overwhelming. You want to grow in a smart way that keeps your brewery thriving but also gives you the flexibility to achieve your goals.
The better answer: industry-focused expansion financing. Often, traditional banks and lenders do not fully understand the unique processes and equipment needed to run a successful craft brewery. This simple fact restricts their ability to embrace your vision confidently and help you realize the fruits of your business plan.
At Live Oak Bank, we help craft brewers across the country realize their dreams and potential with financial solutions that are fueled by industry expertise. Let’s review five unique brewery projects in which our dedicated loan team leveraged its industry knowledge and cash flow lending to help brewers take their businesses to the next level.
The owner founded her brewery in 2009 focusing on German lagers, and her sales increased year over year. She aggressively distributed to a few territories and continued to expand for increased production. Her 4,500 square foot facility was only able to produce 4,000 BBLs per year.
Live Oak was able to provide financing for her to move into a 30,000 square foot leased facility to expand production and open a tap room in the future. The owner required funds to upfit the space, refinance existing debt, and buy additional equipment. Due to our ability to provide comprehensive financing, the business was able to utilize its operating capital during construction for distribution expenses.
The owners founded their brewery in 2006, which began as a small brewpub and expanded steadily over the next ten years. They now have a large brewpub, production brewery, and café, and are expanding into a second brewpub location. Live Oak’s financing helped build a ground up addition to their existing production facility, which will allow the brewery to expand their distribution footprint beyond seven states.
The building will be 14,000 square feet with the production capability of 50,000 BBLs once completed. Due to the strength of the business and steady growth, Live Oak was able to finance $5,000,000 under the SBA 7a loan program, while providing an additional conventional note. Equity was not required, so operating capital is being used by the business during construction.
The owner established his brewery in 2004 and is one of the largest craft brewers in the state. After growing substantially year over year, the owner eventually had to start turning away distributors. The brewery has continued to expand its taprooms
and production facilities due to increased demand. The owner desired to refinance his existing debt with us for more favorable terms and also seek construction funds.
Live Oak was able to save the owner over $400,000 per year due to a longer term and lower rate, substantially increasing the cash flow of the business. Utilizing the SBA program, we lent $5,000,000 under the SBA 7a loan program. However, due to the strength of the business and growth, we felt comfortable lending an additional $2,500,000 in conventional funds.
The owner started his brewery, which included a production facility and taproom, in 1996, making him one of the oldest and largest brewers in his area. The owner decided to open a second tap room with his local lender and after significant construction overruns turned to Live Oak to refinance the existing construction note and provide funds for FF&E and kegs.
The brewery had the capacity to produce 20,000 BBLs per year, but with the expansion it now has the capacity to brew 50,000 BBLs per year. We did not require equity from the owner as the brewery has been in operation for 19 years, and the owner had previously funded overages out of his own operating capital.
The owner founded his brewery in 2010, which consists of a production facility and tap room. His profitability has increased year over year, and he is aggressively expanding his distribution territories. The current space is projected to max out in production capability in 2016, so he has decided to expand into a new leased location which will give the brewery the capacity to produce 88,000 BBLs a year.
Live Oak was able to finance his equipment and provide a conventional bridge note for the down payment of the equipment due to our expertise. We refinanced the conventional bridge note with the SBA 7a loan which closed within a few months.
If any of these expansion stories sound like you and your brewery, let us help resolve your growing pains and reach your goals. Your vision and dreams are attainable with the right experts and partners by your side. Contact me at 910-798-1212 to get the conversation started or visit liveoakbank.com/wcb.
Keith Merklin is the General Manager of craft brewery lending at Live Oak Bank, the second largest SBA lender in the United States* and a nationwide small business bank – Member FDIC.
*Source: Small Business Administration – 100 Most Active SBA 7(a) Lenders by volume in U.S. in FY 2016.