Jump to content

Funding Quest...and an uphill battle...


chinookpilot77

Recommended Posts

So after learning about the SBA's Patriot Express loan, I was very excited and over the course of several months, knocked out a decent business plan to begin handing out to various "Transition Specialists" that work for the Army to help Vets get out and become civilians. They aren't experts in BP's, but I had no clue, so anywhere was a good place to start for me.

Everyone that I showed the plan and financial projections seemed excited about the idea for a craft distillery and said the plan looked great. I decided to take it to the next level and send it to a woman who works with the Business Development Center in the city I plan on setting up shop in, and she has been nothing but negative about the outlook for start-up financing right now, even with SBA loan backing. I dont really want to go shop around lenders until I can have a viable plan and projections, so I was hoping to make it past this last hurdle.

Anyway, I'm done venting...any tips or pointers for finding a lender? I have a 25% down payment for the amount I need to borrow.

Link to comment
Share on other sites

Was she negative about the outlook for start-up financing, or negative about your idea/plan, or negative about your financial projections?

Or all three?

I don't know how much you have or are trying to borrow, but you can start up a micro distillery on a shoestring. While you will still need quite a good chunk of working capital, this might be a better route to start off.

You could buy a reasonably priced Iberian / Moonshine still (make your own?). Use plastic totes (to start off with). Use gravity/hand pumps to move liquid around. Keep costs right down. There is nothing wrong with starting very small, and this is a great way to test the market. How do you really know how many bottles you can expect to sell?

Why not partner up with a local micro brewery, and use them to make the wash/wort, while you focus on the distilling? Catching some of their market in the process?.... If they have the space, you could even set up in/alongside their building.

Perhaps partner up with an independent and popular restaurant/bar and join your distillery on to their business? A kind of distill pub.

Maybe locate on/nearby a massive local tourist attraction (if there is one), and aim mainly to take a slice of that market?

The point I guess I'm trying to make is that you need to be adaptable. Highly adaptable. Your plans might change ten times before things finally get going. And there are always going to be hurdles (a lot of them, and they usually involve more $$$), you just have to find the best solution and get on with it.

I would also say (not being from the US) that your boom in micro distilling is not likely to make things easy: being another one of hundreds of start-ups. I would certainly work hard to differentiate myself from the others, finding an alternative route to market to ensure long-term sales.

As for the loan. It will be much easier to get once you can show a bank a set of accounts and a small profit.

Link to comment
Share on other sites

As a former soldier who got out of the military, got a PE SBA loan, and then went straight into this business, I think I can add some perspective to this. First off, your aforementioned "transition specialists" aren't bankers, lenders, or industry personnel. I'm sure many/all of them are very nice people and they MAY have some financial/business experience. However, the ones I dealt with weren't the best benchmark with regards to prepping for bank lenders, they were civilians paid by the Army to help soldiers get a job. If you know anyone in the banking/lending world that you can go backdoor to and at least get them to look at your plan/financials to give you an idea of where you would stand in their world, that would be your best way to gauge things. This isn't someone you want to get the loan through, this is merely someone that can give you you their honest assessment. This can be someone in a different state that is maybe a relative or family friend. The only way you'll know what lenders think is if you can get an opinion from a lender. Case in point, my wife works at a bank. She got someone she knew to look at things. We then went to ANOTHER bank and pitched the plan there. I also worked with our local SBA office in Nashville. The folks there that looked at my stuff were very, very helpful and they had a business/financial background. The lady at the business development center is likely a paid govt employee with little to no business background or experience, I'd likely lump her into the same category as the "transition specialists."

Also keep in mind that even though you likely think/know a craft/micro distillery is a great idea and you understand the growth of the industry, realize that this is a crazy business to propose to just about anyone who knows little to nothing about spirits in general. After spending 2 years on my business plan, 1 year getting the business set up/licensed, and now in our fourth year of doing business, I've learned that there are many individual factors involved with regards to one getting a successful craft/micro distillery going. It is true, you can certainly get one going on not a huge amount, specifically when it comes to equipment. However, most of my upfront/immediate ongoing cost was not in equipment, it was on our site (electricity, water, concrete), PRODUCTION COSTS (bottles, corks, labels, grain, yeast), marketing/design costs, and the wonderful dust collection tax imposed by the fact that you can't turn on your equipment until you're fully licensed (so you're probably paying rent, insurance, and some utilities for at least a few months). Plus, even if it's just you doing the "magical mystery tour" from place to place to get your product on shelves, you still need money for gas/hotels/food. Something you can do to really prove to a lender that you're serious and know what you're talking about is to visit as many similar places as you can, talk to people in the industry (ADI Conference would be an efficient, easy way to do that), and really have a good idea of what reality is/would be for you and your future business. I don't plug our course that we offer to fill the seats, we do it less for making money and more for providing individuals a quality day of instruction that is efficient for both myself and them (if I spoke with the 1-2 individuals each month that want to come by and spend several hours talking business I wouldn't have time sleep as I still work 7 days/week). But, one or more classes/courses definitely would help your pitch to a lender who is going to be thinking to him/herself "a microdistillery, what the heck is he talking about....???"

Link to comment
Share on other sites

Anyway, I'm done venting...any tips or pointers for finding a lender? I have a 25% down payment for the amount I need to borrow.

First of all, that woman from the Business Development Center should be fired. Immediately. Her sole job is to help people like you in whatever way she can, and to bring more jobs and taxpayers to her city. You should be p.o'ed that your taxes pay her salary.

Second of all, are there a mess of microbreweries in your area? Not pubs, but actual breweries that package their beer. If there are, believe me, they are all expanding. Find out where they bank. If you're lucky, they all bank from the same local or regional bank. These banks are used to dealing with beverage manufacturing, and brewing is quite close to distilling in terms of reselling equipment. The used market is white hot right now because all the small breweries are expanding, meaning your equipment will yield good solid money should the bank need to resell your equipment in the event of a default. Make sure you tell the banks that a distilling fermenter is the same thing as a brewing fermenter, and a mash tun is a mash tun. This will help their comfort level.

Believe it or not, the SBA and your lender will like it when you buy more equipment relative to the size of the loan----that way they have an asset to sell should the loan go south. This doesn't mean you should buy stuff you don't need, but this is food for thought in structuring your loan.

Third of all, thank you for your service, and best of luck.

Link to comment
Share on other sites

Thanks for all the great responses everyone, I really appreciate it. I was a little discouraged yesterday after reading yet another email from her.

TL5612, she was poo poo the idea of basically any start up right now, selling it like its virtually impossible right now, regardless of BP or down payment.

Denver, all of my issues are compounded by the fact that I am stationed in Korea right now, so even making phone calls to the states is a nightmare to catch people during business hours. I know there are a couple micro's in the area, I'll reach out to them and see.

Paul, you and I have talked before, a few years back when I was in Germany and just getting interested in all of this. I read an article about you in the Army times back in 2005 or 2007, one of the two. (I know I was in Iraq when I read the article.) I have tracked your progress from a distance, and as a former soldier yourself, I've always wished you the best of success, even if you didn't know it. I have driven by your distillery twice from AL to IL and it was always late by the time we drove through, so I've never had a chance to stop. Once I get back to the states, I'd gladly swing by for your class.

I have already asked the witch at the local business development center for some local SBA lenders so I can speak with them directly. I cannot believe the market is nearly so dire as the one she paints.

I'll keep you all posted on my progress. Thanks again.

Link to comment
Share on other sites

Hi Chinook,

I'm a fellow veteran in the process of starting a micro-d myself. I'm not currently planning on using a patriot express loan but I have looked into it as a possibility. The patriot express is an SBA guarante'd loan similar to a VA house loan. A bank still lends you the money and it is their decision alone whether or not you get it. You still need to put up some type of collateral to guarantee the loan. In a VA home loan the house itself is the collateral, in a business loan some type of asset must be used for collateral, it could be equipment but most likely it is a personal guarantee against your home or other real estate. For that reason I decided to use a combination of savings and a home refi with a cashout of some equity (was doing a refi anyway to get a better interest rate). Hope this helps.

Link to comment
Share on other sites

You may have already done this, but the SBA publishes a list of their state boards here:

http://www.sba.gov/districtoffice

From there you can find your state's office and contact information for the key players at the SBA. With any luck, you can find someone there to take a personal interest in your plan.

We are in the process of doing this too, and things are going well. So startup funding is not impossible, regardless of what Debbie Downer says.

Link to comment
Share on other sites

Thanks all! I have the contact information of several banks now in the area I'd like to do the start up. I am just using one of them as a sounding board at the moment. Hopefully he can give me industry specific guidance as to what exactly should be included in today's market. I have at least 25% to put down, and with a 75% backing from the SBA, it means the bank is taking little, if any risk at all. To me this is a no brainer, but maybe I'm missing something.

Link to comment
Share on other sites

Chinook, I'm a big seller of sba loans (trading jargon for "i dont like them"). Like kckadi said, you jump through a bunch of hoops to for the lending institution and you end up having to sign a personal guarantee for the loan anyway.

Link to comment
Share on other sites

Chinook, you will personally guarantee the loan til paid back in full. YOU will carry a personal life insurance policy covering the loan for the life of the loan . etc etc etc. bankruptcy does not apply either.

Link to comment
Share on other sites

  • 3 weeks later...

mattabv: SBA loans and the personal guarantees given under them are dischargeable in bankruptcy. Even if a borower's income exceeds the means test for a Ch. 7 discharge, the business debt exception - an entrepreneurial exemption from means testing - allows this for debt incurred primarily for business purposes. Hopefully none of our dear readers need to use it (I have in another unrelated venture) and my advice would be a solid business plan, good research and foundation in distilling and business, and to start as small and simple as possible with a scalable plan for growth so that debt can be kept minimal as demand and cash flow grow. Landlords, lenders, etc. are hungry beasts that demand feeding...

Link to comment
Share on other sites

I have done SBA loans on 2 my businesses and have just received great terms offers from 3 banks for doing a distillery. I went the 504 route for equipment and property purchase as well as renovation costs, you can include architect and lawyer fees etc. in that also if you want. They term the loans out longer than conventional lending, especially on equipment. You also only have to have 10% of your own money in so that allows you to use your capital for initial cash flow. The big downside is there is a prepayment penalty if you decide to pay off early, but with rates as low as they are right now I am not certain why I would ever pay off early unless it was because I was selling the business.

I have been very fortunate with the SBA 'broker' folks in my area who have been very informative, supportive and helpful in determining which partner banks would best suit my needs. Sounds like you have a very negative person working against you and not for you. Maybe you could shop other SBA folks. Some banks have SBA people on staff and there are professional companies that just do SBA lending.

Good luck,

Link to comment
Share on other sites

  • 2 months later...

If I were you, I'd be looking for a city that isn't so negative about independent distillaries. Sounds to me like this lady (or someone like her; there's usually a crowd) will cause you nothing but trouble, usually using obscure regulations and city ordinances. It has happened and I've heard of independent brewers getting into scraps with city officials who wanted to make themselves feel important. But, anyway, I recommend looking at credit unions that are friendly toward veterans who want to start their own businesses and staying in contact with the SBA. Good luck.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...