(Disclaimer: We're not attorneys or bankers. This is free advice from our own experience with the process. Take it at your own risk.)
Every brewery is unique and the financial needs that you'll have for your expansion are unique. Let's just say that we came from the worst case scenario in that none of us come from money or have killer jobs that make a lot of money. We started this with a lot of patience and on a shoestring budget.
Investors. We briefly explored taking on investors. The positive of private investors: generally there's no interest on the financing and the money you do get comes with fewer strings attached. The negative: you've gotta make it worth their while, which generally means that you're giving up equity and giving up a portion of your profit.
Bank Loan. The common alternative is a bank loan (generally an SBA loan). Like an investor, you've gotta convince them that your project holds muster, but you'll retain all of your equity.
Here's a quick rundown:
- Loans are either 10 years (tenant improvement) or 25 years (typically for building construction);
- Interest is generally 2.25% to 2.75% above prime and the rate adjusts quarterly;
- There's no pre-payment penalty on the 10-year loan; It's progressive on the 25-year loan (In the first three years: 5%, 3%, 1% respectively);
- During construction, you can elect to pay interest-only as you progressively withdraw funds (up to 12 months);
- Anyone with more than 20% equity in the company needs to act as a personal guarantor of the loan;
- Collateral is necessary (generally real estate, rental properties, etc.);
- There are packaging fees paid to your bank (ours was roughly $2,500) and there is a 2.5% fee paid to SBA at funding;
- Your project categories matter. Once you set a budget for a given category and the bank approves it, you need to fully satisfy that category before moving those funds elsewhere;
Don't let this intimidate you. It's a big hurdle, but it's doable. Your banker can make all the difference. We worked with John Weber at Coastal Bank in Everett, WA. His willingness to walk us through this process was the difference maker. He reviewed our business plan, helped us see the deficiencies and gave us checklist after checklist to work us through the process. We owe John a ton.