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Financing Your Growth

If your brewery is like most, you are growing and expanding, and that takes a precious commodity more important than hops – cash. The more taps you set, the more kegs you need. The more beer you make, the more fermentors and bright tanks you need. Operations are not likely to produce the cash you need for purchasing equipment. Here are some thoughts to keep in mind as you look to finance your growth.

If you are seeking bank financing, you are going to need up-to-date financial statements, along with statements for the past two years, and a cash flow projection for the next twelve months. It is important to keep in mind that banks are not in the business of taking on risk (they don’t enjoy the rewards either – they just earn interest). So it’s your job to mitigate the risks inherent in any loan via adequate collateral, positive cash flow, and likely personal guarantees.

How about raising more equity? Certainly looking to your current investor group is an obvious first choice. Getting cash that you don’t have to pay back or pay interest on – pretty sweet! So, a common question – is it dilutive to existing shareholders to raise more equity capital? From both an ownership percentage and a value perspective, certainly not, if each existing shareholder contributes proportionally and you don’t take on new shareholders. Keep in mind, however, that raising equity capital never diminishes the value of an existing shareholder’s investment if the new shareholder pays as much or more than existing shareholders did.

What about debt financing from individuals rather than a bank? Items to keep in mind with this sort of financing include the following:

a) You will likely pay a greater rate of interest.

b) You may be able to increase the likelihood of raising funds and reduce the interest rate by offering a convertible feature with the debt instrument to redeem for shares of stock at a pre-set strike price.

Bottom line -- if you are a successful growing brewery, you will be regularly involved in raising cash. And, there are many ways to do so which often employ as much creativity as creating that next perfect brew.

Have questions about raising capital? Contact Dan Slate at 231.924.8007.

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