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SBA Loans - Generic, Micro, CDC/504 - Good idea, bad idea?

Ian Newton

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Does anyone have experience in getting SBA loans to finance PP&E for a craft distillery? In general, this looks attractive. I have heard from friends in other industries that the loan interest rates are quite low and reasonable. Right now, we plan to send in an application to see what we catch, but I'd love to hear from the spirituous lot of you what experiences (if any) you've had, or if you find that other financing sources are mo' bettah.

So that I'm not just asking for free knowledge while being a total waste of space, I'm going to write down some of the high-level I've learned about the loans so far. Also, count on hearing back from me on this after I meet up with our "SBA Loan Guy" (who has not yet impressed me with his awesome master of English):

General small business loans - 7(a):
- fixed rate and adjustable rate available
- can be used for PP&E and operating expenses, so these are pretty flexible
- real estate maturity = 25 years; equipment = 10 years; working capital = "up to" 7 years;
- rate @ an average of 4.6% and 5.3% annually respectively (this average takes into account servicing fees into the life of the loan)
- rate is a negotiated spread put on top of one of three base rates, so no guarantees that ours wouldn't be a higher rate
- monthly payments
CDC/504 Real Estate & Equipment Loans
- must create 1 job / $65,000.00 of loan (or $100,000.00 if we qualify as a manufacturer) - *** DOES PAYING CONSTRUCTION CONTRACTORS COUNT TOWARD JOB CREATION? DO WE QUALIFY AS A MANUFACTURER? ***
- The purchase of land, including existing buildings
- unlike the general loans, NOT useable for operating expenses/working capital/inventory
Microloan program
- Up to $50k
- distilleries = NAICS code 312140, which must have fewer than 750 employees to be "small" according to the SBA. Sounds like craft distilleries are going to have an easier time outgrowing the distinction of "craft" before they outgrow the SBA category of "small"
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Ian: I was successful in getting an SBA Patriot Express Loan, which is a 7(a) type loan. It's a decent program, but I'll had some thoughts on the loan in general.

I went to a local bank first. I'd researched what I was looking for ($), as well as the specific programs while doing my business plan. I included in the cover sheet specifically what I was looking for, and what was being offered as collateral. There were also a few state and city programs doing loans that I included in the total amount of the loan.

Why did I go to a local bank vs an SBA loan guy? That SBA guy will steer you to and SBA loan. The bank, if they like what you have to offer, will look at a few more options. Also, at the end of the day, you'll be going through a bank. Plus, as I'm trying to make and sell a local product, it made sense to me to use a local bank.

The Express loan will charge you prime + 3.25%. Length of the loan is tied to your lease. There will be a fee of 3% of the loan cost that you're paying at the front end. The other loans were a lot less in interest rates (2% total), as well as money available. At the end of the day, I didn't use any of the others though. They had a lot more hoops to jump through.

As I was signing the loan, my banker mentioned that despite there being six microbreweries and a distillery in the area, I was the first they were granting a loan to. When I asked him why, he gave the following reasons:

1. I was putting 1/4 of the total costs in out of my own money. I had skin in the game.

2. I had collateral (my house). SBA may cover up to 75% if it defaults, but they and the bank figure they'll get about $10 back on every $100 of equipment you've bought.

3. I sold myself. Since this is a new business, they want to know how the owner (you) are going to make it a success. Outside of a few areas in the country, this is probably a brand new concept to them.

4. My business plan was at 90% of what they wanted to know, to include all the financial statements (12 month cash flow, P/L to 5 years, Start up expenses, etc) with solid research to back it up. That being said, all that you've got on what you'll sell is at the end of the day is an estimate. That number was pretty low. And, my expenses were all on the high side.

So, I guess this was less a response on the SBA loan specifically, and more on the loan process. Hope it helps.

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I have a 7A on a different project (non distillery), and have had it for about 3 years now. It worked for us at the time, but it is a huge pain in the rear now. ALL of my assets are locked up by it.

We're looking at a 504 (green) for another project (also non-distillery), and that program looks very promising. Much easier to deal with once it is in place than the 7A, but harder to get initially.

To answer this question:


I believe you can use construction jobs toward the job creation requirements, however you don't get to count them 1:1. Depending on your area, you have to discount them since they're transient. We also have a HUD Sec. 108 loan, and that has stringent job requirements as well - more stringent than the SBA loan - and even that program allows partial counting of the construction jobs.

I don't know if a distillery would be qualified as a manufacturer, but I believe it would.

If you do go the SBA route, get ready for the *complete* exam. It's quite a bit more thorough than many regular bank loans I've received over the years.

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