SBA-Guaranteed Loans for Financing a Craft Brewery
Lending from local, regional, and national banks can be challenging for a startup. A different way for startups to get funding is through the Small Business Administration. The Small Business Administration was established on July 30, 1953, and it offers small businesses loans, loan guarantees, and other forms of support. Depending on the borrower’s needs, the SBA offers a number of programs. The 7(a) and CDC/504 are two initiatives that have benefited little craft breweries.
The most popular loan program is SBA 7(a). Businesses must meet certain requirements to be eligible for assistance. The company must be small and run for profit. Depending on the size standard used in that industry, different industries have different definitions of what “small” means. The small business size standard, which is determined by the number of employees or the average annual revenue, specifies the largest size at which a company can still be considered small. 1,250 employees is the minimum required by breweries. Additionally, the company must be based in the United States, have a reasonable amount of equity invested in it, have access to other sources of funding, and use the money for legitimate business purposes. On the SBA website, there is a list of businesses that are not eligible. A variety of financial and business needs can be met with a 7(a) loan. The acquisition of equipment, machinery, furniture, supplies, or materials; the construction of a new building; the purchase of real estate; the refinancing of existing business debt; and the launch of a new business are a few examples of these. Despite not having a minimum loan requirement, the SBA does have a $5 million maximum. Depending on the loan amount, the fees change. They can be as low as 0% for loans under $150,000, 3% for loans over $700,000, and as high as 3.75% for loans over $1,000,000 in amount. Fixed and variable interest rates are options that can be discussed and agreed upon by the borrower and the lender. For loans up to $150,000 and 75% for loans over that amount, the SBA can guarantee up to 85% of the principal.
Community Development Corporation (CDC) is a non-profit organization set up to offer programs and take part in other initiatives that promote community development. Major fixed asset financing is the main purpose of the CDC/504 Loan Program. This can involve buying land, purchasing existing structures, building a new facility, making improvements to the existing structure, or investing in durable machinery. It cannot be used for inventory or working capital. If a brewery only needs money for brewery equipment or building upgrades, this loan is a good option. In a CDC/504 program, a bank partner will contribute 50% of the loan, a CDC will guarantee another 40% of the loan, and the final 10% will come from borrower equity. The borrower may, however, be required to make up to 20% of the required contribution in some cases. The amount of the loan depends on how the money will be used, and the interest rate is set. The CDC/504 has fewer uses than the 7(a) and may not be the best choice depending on what the brewery needs the money for.
There are a few breweries that have had success getting loans from the SBA. One in particular is Upstream Brewing Company. For a new brewhouse, equipment, and furnishings for a new location in Omaha, Upstream Brewing Company was able to obtain a $750,000 loan from a national bank with SBA insurance. For many years, they were successful, and when it came time to renew their lease, they investigated the possibility of buying the house outright. Upstream Brewing Company requested a 504 loan from another SBA-approved lender. In order to buy the property, they were able to secure a $1.4 million 504 loan in 2012. It’s possible, according to Upstream Brewing Company’s president and owner Brain Magee, that the company’s west Omaha location would have disappeared without the aid of the SBA’s 504 loan program.
According to information in Steven Rogers’ book “Entrepreneurial Finance,” there are several ways to increase your chances as an entrepreneur of getting an SBA-guaranteed loan. Making sure you don’t have any personal financial issues and have a solid credit history is one way to achieve this. A strong business plan with realistic goals and forecasts can improve your chances of getting a loan. Utilizing additional services and initiatives, such as those offered by Small Business Development Centers (SBDCs), SCORE, and Small Business Learning Centers, can assist with management and technical support, business plan creation, and training resources.
