Advice regarding equipment financing

[RichFellows]

Any advice regarding equipment financing? Or something I haven't asked that you think I should know about. Ideally I'd like to use my cash on hand to lease the space, get all the permits, pay for the build out of the space, keep the lights on until I can actually brew/sell product. I would like to use my cash for only that and finance 100% of the equipment. Looking at most likely used gear if I can find a deal that makes sense. I have trucking connections to get it to me from wherever it is at a decent price, just need to find someone with a reasonable price. I have no intentions of quitting my good day job until the brewery is in the black, I don't care if I have to work 12 hour days 7 days a week until I achieve my goals.

Specifically:

• Good companies you've worked with
• Does it make more sense to finance outright or lease?
• With decent credit, a good day job and $60-70k to put towards build out, permits, fees, 1st year operations cost is it unreasonable to think I can finance $100k collatoralized by the equipment?
• What pitfalls should I look out for?

Thanks in advance!
Rich

[WaywardOwlBeer]

1st put out a request through the SBA website for local banks to contact you about your project. I had calls back in 20 minutes.
It depends on the amount of the total project and the amount that you are looking to finance. Add 10-20% to all those numbers. I raised cash for my operating capital as my contribution towards the project (15% is the SBA requirement we raised over that percentage) which we are using for working capital. We had to raise well over $200,000 (15bbl brewery) for working capital. We worked in tandem with a local bank (not a national) on getting a SBA loan to finance all the equipment. Pick a local bank or credit union that wants to invest in the community. It took months. It took having every nut and gasket priced out. It took re tweaking the business plan countless times and it took a lot of explaining the details of how things operate to the underwriters.
It can be done but be prepared for A TON of hard work before the hard work even starts, to be questioned a lot, be prepared to be told no by multiple lenders. Also, hire a decent lawyer and a business accountant to help you with working the numbers out for the banks/SBA.

They will likely not finance you based on collateral equipment because they don't truly see it as an asset. They will want a personal guaranty from you and your investors. It can be done but these are the things that will have to happen. Hope this helps a little.


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[RichFellows]

Thanks for the advice. Had also planned to look into my personal local bank I've been banking with for years in addition to the national lenders. Fortunately at this stage my future wife (will be married before this all happens) have good day jobs, some money saved up, equity in the house if needed, etc to help provide a personal guaranty of the loan. Interesting aspect though that they don't generally consider the hardware a tangible asset for collateral. I guess it's harder to sell a giant fermenter than say a mobile item like a bulldozer or a piece of real estate.

A Kickstarter type campaign to help things get going would be nice to do as well but you know how it is, takes forever for the startup process with banks, feds, etc and I'd hate to try to do one of those until I'm close to opening and guaranteed to open. Who wants to have their reward show up a year later or not at all should something fall through? (I've had that happen to me with a project I supposed)

Thanks again.

[Hoodbridge Brew]

We're getting ready to close on our SBA loan next week. We found a local bank who was willing to go 50/50 debt to equity with us. We have raised over $300K and the bank is fronting $270K. As for the process, I build a very detailed business plan, a very detailed set of financials, which included 3 years of projected profit and loss statements including cash flow statements, income statements and balance sheet based on some very conservative production targets (1000 bbls first year on a 15 bbl system). We had to have a lot of things in place to get it done, including the lease which took the longest. You will have to sign personal guarantees on everything, and it's very likely that if you have equity in your home, that the SBA will require a lien. Best thing for us was that we went with a local bank that has SBA Preferred Lender status, which means the bank can underwrite the loan itself, ensuring it meets SBA standards, and you don't have to send the application to the SBA separately. Way, way faster process. The do expect that we spend all of our cash on had before they will release the funds, so they are essentially funding working capital and portions of the equipment. Construction is on us. Definitely shop around and do not waste your time with big banks. PNC wasted 4 months of my life.

[RichFellows]

I have a local bank I use for personal accounts and they're awesome. They love financing local projects and staying active in the community. I do plan to try to work with them if possible but was also looking at other possible options as well.