£10,000 Asset Finance for a loss-making microbrewery
Providing a key asset when conventional lending is impossible
Funding can be easy enough to arrange for a successful business - lenders are happy to lend when they believe that they will be repaid.
But not all businesses are profitable, especially in the early stages of their operation. This can mean that, in the first months and years of a business when it is still trying to find its own route to success and start to generate profits, that borrowing is all but impossible.
Naturally, lenders are much less keen to lend to a business that cannot show a profit - even when the investment is vital to the future of the business.
All too often this can mean that a promising business will fail, because it is impossible to raise the funds it needs to make the necessary investments.
A small Hertfordshire-based brewer approached us at Rangwell for help buying a large vessel that was key, not just to their brewing plans - but to the very future of their business.
The brewery, which is based in a remote part of Hertfordshire, was started by two brothers who had begun their business in a small dairy unit on their parent's farm. Their first batches had been met with some success, and they were eager to increase their production capacity.
It can be simple enough to set up a microbrewery, producing small batches for under £3,000, using secondhand equipment. The brothers had been able to secure the key items such as a mash tank, lauter tun and fermentation tank, plus some pumps and heaters and bottling gear at an auction.
“The problem was the size of what we were doing. We could sell all the beer we made easily enough - but we could not make enough to make a profit out of it.”
The costs of brewing equipment rise as the size of vessels and consequent production volumes grow. A set-up capable of producing 400 litres of beer on each production run might easily cost around £10,000.
A 12-barrel brewery, producing 2,000 litres or more, could cost anything between £50,000 to £80,000.
With some firm orders for their beer, the brothers approached their bank for help.
“The bank had been behind the farm business for years, so we thought they would help us out on our new venture. But we were disappointed.”
Banks have rigid lending criteria – and under their rules, the brothers' venture was a new business, rather than part of the established farm. Not only had it been trading for just a few months - which meant it was still seen as a start-up - it had failed to generate a profit.
“The bank didn’t look at the potential of what we could do - they only looked at how long we had been doing it - and how it hadn’t shown an income. In their view we didn’t have a business, just an expensive hobby.”
At Rangewell, we took a more positive approach. We know that a good business idea needs support to succeed, especially in the early stages. We were keen to help.
We work across the entire UK lending market, and we know the lenders with a more entrepreneurial approach, who may be able to help when the traditional sources of business finance may be unhelpful. However, in this case, we saw that the problem required more than shopping around to solve.
We visited our client, discussed their plans and saw that a cash lump sum might not be the best option, even if we could secure it at an affordable rate
“Someone from the Rangewell team came in to see us, and saw how we were working and what makes us different from most small brewers. A bank won’t take the trouble to do that.”
Rather than provide cash that would simply be a burden until it was actually required, we saw a more cost-effective approach.
Asset Finance - to bring in the equipment required
What the brothers needed was not cash - but equipment. Rather than borrow money to buy the vessels and pumps they needed, we suggested an Asset Finance approach.
Asset Finance covers a number of financial solutions, which can be used in a number of ways. Asset Funding is particularly effective because it allows loans or leases to be secured on the assets or equipment itself. This means that lenders have the right to take the assets if payments are not maintained - but on the plus side, they can reduce costs compared with conventional business loans.
What’s more, because the funding was secured by the assets, rather than the prospects for the business as with a conventional loan, it became possible to provide the finance at an affordable rate.
There are many Asset Funding providers in the market, and the difference between the lowest and highest rates offered can be substantial. At Rangewell, we used our expert knowledge to get the deal our client needed. We know the lenders who have knowledge of the microbrewery sector and approached those who would have a positive approach – and who would share our enthusiasm for our clients' unique business.
We were able to arrange a £10,000 Hire Purchase agreement over 5 years for the brothers at just 10%.
The funding Rangewell arranged:
£10,000 over 5 years
Monthly repayments = £210.36
Annually = £2250
Total cost of loan = £2,621.35
At Rangewell we can help you arrange all types of funding for your microbrewery business. We work closely with our clients to understand their needs before we recommend a particular type of finance. If you are thinking about a finance solution, talk to our experts or apply today. Our service - and their expertise - is absolutely free.