brewing equipment as collateral

[Supernaut]

Hello All,

We're working with a bank to get funding right now. From a collateral perspective restaurant equipment is considered (by banks) to have a resale value of roughly 10 cents on the dollar. Now, from what I've seen while searching for used equipment (tanks and brewhouses), used brewing equipment seems to be at more like 90 cents on the dollar when bought in pieces and less expensive when buying a brewery en masse, but still more than 10 cents on the dollar.

How have folks "phrased" your brewing equipment from a collateral perspective to banks? Suggestions??

Thanks!

JB

[CopperKettle]

We were only able to get 1:3 LTV (Loan to value) so i guess you could consider that to be $.30 on the dollar. Real value vs bank perceived value are very different things. On used equipment in good condition I would consider $0.60-$.80 to be very reasonable in the actual marketplace.

[einhorn]

While I agree with your premise, I think that many times the banks simply say that they must make an effort to sell equipment that they have no idea about, which also costs money and time.

[Supernaut]

einhorn - agreed, that's why we're trying to educate them a bit. copperkettle - thanks for the numbers!

[CopperKettle]

Banks understand cars and houses, anything else they are automatically on guard and worry about losing money in the case of a default. Yes it takes money to pay for the time and labor involved in liquidating collateral, but you can get 100% financing on a car all day long. It's a comfort level issue for the bankers.

Another factor that led us to a relatively poor LTV was we had never owned a business before. We had lots of assets, just not much experience.

[einhorn]

Not sure that they will let themselves be educated. Generally, they have standard percentages that they apply to situations like this and will always be hesitant to believe numbers outside of their base of knowledge.

[Supernaut]

and will always be hesitant to believe numbers outside of their base of knowledge.

Yep, I agree. I hope we can swing them a little bit, though. Our loan officer is quite receptive to this kind of info. Whether or not that matters to the underwriter squad is another topic altogether. We can only try!

[gungadin]

you could ask your bank if they would be willing to consider a higher loan to value if you supplied an evaluation letter from a used equipment dealer. You will have to pay for the letter so its worthwhile to ask the bank first.