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The Many Facets of Business Credit

Rick Wehner, Brewery Finance

When applying for business credit, most commercial lenders are going to require a personal guaranty from all owners of the business that have 20% or more ownership (some lenders are starting to require the guaranty of all 15% or greater owners as a matter of fact). This being the case, it is wise to have a frank discussion with your partners about their credit before you go in to business together and certainly before you decide to apply for financing.


Over the years, I have seen many relationships tested because one or more partner in a brewery was struggling to keep their credit scores up. This doesn’t necessarily mean that your financing won’t be approved, but it will most likely mean that you’ll be paying a premium for your financing.


Surprisingly, not all credit reporting agencies report the same information on your bureau every time and there are a number of factors that lenders will review when it comes to personal credit. Some important areas to keep your eyes on:

 

  • Credit score: The higher the better.
     

  • Depth of credit: Not all scores are created equally! There is a big difference between a 785 FICO score for someone with 3 credit cards, no term debt, and 4 years of credit history than someone with a 785 FICO score with a mortgage, 20 years of history, term debt that has been paid in full (cars, etc..)
     

  • Revolving debt: Lenders will look at both the amount of revolving debt (total credit card debt), as well as the revolving debt “burden” (percentage of total available credit card debt that is currently utilized).
     

  • Inquiries: It usually pays to shop around, but remember that each lender that you supply an application to is going to pull a credit report. Having a few recent finance inquiries on your bureau is not a big deal, but having sustained inquiries over a period of time can look like you are desperate for money or that you have been turned down multiple times and can be cause for concern to a lender.
     

  • Public Records: Open Suits, Liens, Judgments will all be reflected on your credit and, at minimum, you’ll be expected to explain any derogatory items that are of public record. In most cases, you’ll be required to provide proof of satisfaction of any liens or judgements. Having open public records on your credit will really hurt the score.
     

  • Bankruptcy: Bankruptcies typically reflect themselves on your personal credit for 7-10 years after they have been dismissed. If you have filed BK, it is important that you start rebuilding your credit as quickly as you are able. Being a startup and having a bankruptcy on your bureau, even if it is dismissed, will make it very challenging to get approved without providing additional collateral.
     

  • Slow Payments: Slow payments, especially recent ones, can really derail a credit score and it can take months to get it back up after it goes down


It’s always a good idea to keep tabs on your personal credit and you can request one bureau per year from each credit reporting agency (Trans Union, Equifax, Experian). However, keep in mind that the credit scores that you’ll see on the bureau provided to you by the reporting agency is not always going to be the same as the score a bank or other lender will be seeing.


The good news is that not all lenders will base a decision on JUST a credit score. While there are a number of lenders that will feed all of your information into a scoring model and it will pop out an approval or a decline based on that model, there are plenty of “story lenders” that will use your scores as just a portion of the total underwriting criteria. All is not lost if you don’t have the highest score on your block, but it will pay dividends to keep an eye on your credit and understand what factors drive the score up or down.

Dogwood State Bank: SBL Craft Brewery
Samuel Adams Brewing the American Dream
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Contributing Author

Rick Wehner                                             Founder, Brewery Finance

Rick Wehner founded Brewery Finance in 2005 and has since provided nearly 1500 startup and established brewers with vital equipment funding to help them launch, grow and flourish.

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Looking to Build or Expand?  10 Questions to Consider Before Choosing a Lender

Scott Birkner, Dogwood State Bank

As a craft brewer, you know beer. You know the exact amount of hops it takes to produce your crowd pleasing IPA. You know which Saison will be most popular in June and which stout will sell in September. You know the amount of barley needed for your next brew. You are a success because you know these things. This knowledge allows you to provide your customers with their desired product.

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TIPS for your Business' Next Build

Jason Sleeman

As you probably know, construction is currently expensive and slow (August 2022). We’ve seen recent projects double in cost from initial plans. Timeframes for getting architecture drawings and GC contracts have been up to 90-120 days. Right now, if you’re looking to complete a construction project, I’d recommend a timeframe of 6-12 months, depending on the scope of your project. There could be some good news on the horizon. Construction spending fell .8% in May—the first drop since September of 2021. Lumber prices have also fallen over 50% from their January peak, bringing the price per thousand feet 

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In Need of Financing for Your Business:

Consider an SBA Loan

Scott Birkner

Personal liquidity, investor raised capital, commercial bank financing – there are several options when starting or expanding your brewery or distillery, and you may find yourself overwhelmed with choices. While all of these options can help you obtain the necessary capital to achieve your goals, you may find that not all will be available to you in your personal situation. Instead of allowing financing to be an obstacle between you and your dreams, consider an SBA loan.

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Advice About Applying for Financing

Rick Wehner

Congratulations on getting through the Planning stage of your brewery! Now, all you have left to do is….everything? It probably feels like it, but you’ve built a nice foundation by putting together a well-thought through and realistic business plan, researched your finance options and figured out what finance options are likely a good fit for your specific needs. Now it is time to take action!

To apply for financing, especially as a startup, you’ll need to provide your lender with:

PLAN

  • Learn about funding options

  • Understand credit criteria

  • Include projections and capitalization in business plan

  • Review personal guarantees with partners

  • Gather financial records

  • Collect equipment quotes

ACT

  • Open bank account

  • Apply for financing

    • Application

    • Business Plan/History

    • P/L Projections – 3 yrs

    • Resume(s)

    • Personal Financial Stmts

    • Personal Tax Rtns – 3 yrs

    • Credit Check Auth

    • Lease Agreement (or)

    • Real Estate Agreement

    • Business Acquisition

    • Construction Estimates

    • Equipment Quotes

  • Sign financing docs

  • Fund your equipment

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GrOW

 

  • Keep financial records

  • Maintain relationship with finance ppl

  • Understand improved funding options

  • Collect equipment quotes

  • Apply/secure financing

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