Finance for Microbreweries: Helping you share in the profits of the brewing revolution

True craft beers are produced by microbreweries, small independent brewers that focus on quality and flavour. Their numbers are growing fast, and there are more than 2000 microbreweries across the UK, so If you have a passion for beer and for brewing, a microbrewery could provide a rewarding business opportunity.

But turning a passion for beer and brewing into a successful and profitable business requires investment. The amount you need to invest will depend on your ambitions and the scale of your business, but could be in the region of hundreds of thousands of pounds.

Fortunately, there may be several ways to raise the finance you need, whether you want to set up on your own, or acquire an existing brewery.

Funding options for your microbrewery business

The first step in securing the funding you need is simply to understand the different types of finance available.

They include:

• Funding premises
• Funding equipment with Asset Finance
• Setup costs
• Buying an existing brewery
• Operating costs

Your premises

Finding the right premises for your brewery is essential. You may be surprised at the amount of space you need.

A small 2.5 barrel brewery would need between 250-500 square feet. A medium 8 barrel brewery would need 800-11000 square feet, and a large 15 barrel brewery would need 1400-1600 square feet.

Unless you already have access to suitable industrial space, you will need to find premises that are adequately sized for your plans – and remember, if your business is a success, you will need room to expand.

You will need running water, electricity and drainage, and open floors capable of carrying substantial loads, together with good roof height. Washable walls and seamless, impact-resistant, impervious and anti-slip flooring will be essential – although you may be able to install polyurethane resin flooring to an existing floor. Many brewers prefer an older building of solid construction where it may be easier to ensure a constant temperature.

You are unlikely to find an existing brewery of the size you need, but you may be able to convert premises such as a redundant church or school, or a warehouse. Alternatively, a standard industrial building may be entirely suitable for building your brewery, although you may need to consider climate control.

The costs of business premises will vary substantially across the country, but wherever you want to operate, a Commercial Mortgage can help you buy business premises. A deposit of 20-35% will usually be required.

A lending manager will look at each application and will set the rate based on the risks and potential outlined in your business plan.

Commercial Property Finance is always arranged on an individual basis. Get our help finding the most competitive lender. 

Equipment

You will need a wide range of equipment to set up your brewing operation. This may include:

• Mash System – Mash tank, lauter tun, electric steam generator, malt mill, wort pump, heat exchanger
• Fermentation system – Fermentation tank, yeast equipment, cooling pump
• Cooling system – Ice liquid tank, refrigeration plant, heat exchanger
• Filter system – Filter diameter tank, pump
• Control system – Meter controlling board, refrigerator board, PLC control board
• Cleaning system – sterilisation equipment, alkali liquor tank, washing pump
• Filling system – keg or bottling equipment

You can seek out secondhand equipment, although the process will be time-consuming. New equipment is likely to be costly, although this could be cheaper in the long run if the equipment has a longer working life ahead of it. Costs for small-scale production may start below £5,000, but will rise as the size of vessels – and your operation – grows.

Asset Finance can help make the equipment you need more affordable, by spreading the costs over time.

With Asset Finance, the funds you need are secured on the asset itself. This means that if you were unable to make the repayments the lender would simply repossess the asset. It can also reduce the cost of the finance, as lower risk to the lender usually means lower interest rates to you.

There are several different types of Asset Finance:

Hire Purchase

Hire Purchase lets you hire the equipment until you have paid for it.  Agreements last between 12 and 72 months and require a 10-20% deposit plus fixed monthly instalments, after which the equipment becomes yours. HP may be most suitable for equipment you will use for the long term.

Equipment vendors may offer finance arrangements to support their sales, but arranging your own finance from a specialist lender can frequently be more cost-effective and mean substantially reduced costs.

Leasing

Leasing is much like a rental agreement. You pay a monthly charge to use the asset. With some arrangements maintenance, and repairs will be the owner’s responsibility. It means you can easily update your equipment, which may be an advantage if you need to increase your capacity or change your brewing process.

Contract Hire

Contract Hire may be the most appropriate form of asset finance for the business vehicles you may need. While you may be able to hire a van for deliveries and to fetch ingredients in early stages of your business, having your own vehicles will become more cost-effective as the business grows. With business Contract Hire, monthly charges are based on the purchase cost, less the value of the vehicle after the contract period, substantially reducing the costs of operating the vehicles you need

Our Asset Finance team can help you lease or Hire Purchase almost any type or value of asset, new or used. Find out more here.

A turnkey brewery

There are specialist companies which can construct an entire brewery for you. The options and specialist equipment you choose will depend on the range of beers you hope to brew, and the scale of your operation. A basic £10,000 installation might produce around 400 litres of beer with each cycle, while a larger 12-barrel brewery, producing 2,000 litres or more, could cost between £50,000 to £80,000.

Finding this kind of investment from your own resources may be possible, but a number of lending solutions exist, including Unsecured Loans, Secured Loans and Asset Finance solutions.

Contact us to discuss the most suitable lending solution for your needs.

Buying an existing brewery

Setting up a microbrewery business from scratch may be satisfying, but setting up any business may mean a risk. Buying an existing microbrewery with equipment, goodwill and established product lines might present an alternative route into the industry.

The costs of buying an existing business would depend on a number of factors. If you are considering buying the business for its assets, the costs should simply reflect the costs of buying those assets as secondhand items.

If you are buying the business as a going concern, the brewing capacity of the existing brewery equipment would be only one consideration. The quality of the product, its reputation and its customer base would be significant factors in a valuation. You’d also be buying the trademarks, the goodwill, the reputation, the digital assets and accounts, the customer and marketing information. When purchasing a brewery business, rather than just the assets, you’re normally looking at purchasing everything that makes the business that business, with one important exception.

Unless the brewery is large enough to employ a master brewer, making the beer will depend on the skills of the owner. If you are an experienced brewer, you may be able to follow the recipe of the outgoing brewer, but it is likely that your brews will still be subtly different. It may be necessary to spend time with the outgoing brewer to try and replicate his or her style to avoid a marked change in the character of the beer your brewery produces.

If you are buying a brewery as a business, you should have greater certainty about the costs and the profits it generates from the company accounts. This should help you agree on a fair price for the business, and your next step should be providing the necessary finance. A Secured Loan may be suitable. By spreading the repayments over a longer period, a loan secured on your business or other assets can be a practical solution to help you to borrow the large sums, upwards of £250,000, required in a business purchase. They are ‘secured’ because the lender will require security in case you cannot pay the loan back. This could be your home, or your business premises.

There is a little more risk to you - but they mean lower rates and longer to repay.

You can also enjoy lower interest rates than with other types of lending, meaning monthly repayments can be lower and easier to fit in with your cashflow.

It may be possible to use a Commercial Mortgage to buy an existing business. This might be particularly suitable if you already own business premises, or if the business you are acquiring owns the brewery building.

Another alternative may be to use ‘jigsaw’ funding. This is a bespoke finance package, made up of a number of loan types, such as a commercial mortgage together with an Unsecured or Secured loan, and Asset Finance.

A loan suitable for buying a practice will require considerable preparation. Writing a suitable business plan, which outlines the current state of the business and your plans to grow it is vital, and you should involve your solicitors to check the content and have the books investigated by your accountant.

Contact us to find out more about funding for buying an existing brewery business 

Operating costs

Premises and equipment may be your most obvious initial costs, but you will need to take care of a large number of other costs before your microbrewery can start showing a profit.

• Ingredients. Hops, yeast and malted barley are expensive,  but costs mount up when you buy for production.
• Water and electricity costs can be substantial in a production operation
• Staff. You may need at least one assistant, and they will need wages, NI payments, auto-enrolled pensions and other costs. 
• Overheads. Business rates, insurance, certification will all mean a financial drain from the moment you launch.
• Transport may be essential. You may need to deliver your beer over a long distance.

Brewery experts make the surprising point  - whatever you pay for your basic brewing kit, you’ll need to budget for at least twice that cost in the setup.

There are a number of ways to provide for these costs through borrowing, which can be secured or unsecured. Both have their advantages and disadvantages.

Unsecured Loans are like personal loans, and don’t involve holding any assets as security. Loans are repaid in monthly or quarterly instalments over an agreed term, usually under 5 years. Modern lenders can provide a fast unsecured lending, but you might need to provide a personal guarantee.

You usually can’t borrow more than one month’s turnover without security, and most Unsecured loan providers will not lend more than £250,000. For a new business operation, many lenders might only be prepared to offer a secured loan.

Secured loans are ‘secured’ because the lender will require security in case you cannot pay the loan back. This could be your home, or your business premises.

You can have longer to repay, and enjoy lower interest rates. This means that monthly repayments can be lower and easier to fit in with your cashflow, and it may be possible to borrow larger sums of money if you can provide suitable security.

Our lending teams can discuss your needs, and help you find the kind of loan to fit your business needs.

Supporting your cashflow

Once your brewery is operating and you are producing beer you may still be faced with a need for funding. Income will not come in from day one, and even when your operation may be selling in sufficient quantities to generate a profit, you may still face difficulties with cashflow. Customers may be keen to buy your beer, but slow to pay for it. Large retailers, in particular, may have long payment arrangements, which could leave you short of the funds you need to operate your business and to fund the next production batch.

Cashflow is a major challenge for every business, and having to wait weeks or months for invoices to be paid can trigger a cashflow crisis – but there are ways to help.

Invoice Finance provides cash advances based on the value of invoices you have issued, but have yet to be paid for – in effect letting you get paid as soon as you invoice.

Both Invoice Factoring and Invoice Discounting allow you to release the funds you need from the work you have done faster.

Funding for growth

Once your business has started to establish itself, you may need to consider growth. Expanding production may take more plant and equipment and more staff, and you may ready to consider new markets further afield, or exporting.

Additional investment will be required to capitalise on your success. This can be challenging if your business does not have the long trading history and profit record that lenders usually require. However, there are lenders who take a more enlightened view and may be able to can help.

As well as solutions for working capital and cashflow as your business grows, there are a number of special solutions for exporting, designed to reduce the uncertainties as you explore the potential of new markets.

Our finance experts can help solve your growth, export and working capital needs.

How Rangewell can help you capitalise your microbrewery business

At Rangewell, we work across the entire lending industry, while our finance experts have personal experience in the needs of different business sectors – including microbreweries.

We understand the special business challenges of the sector. We can work with you to understand them and find solutions, working with the most appropriate lenders, to deliver the most cost-effective solutions.  We also work with lenders across the entire lending market, from the traditional banks to new and alternative funding providers.  We can search them all to find the finance that is right for you.

Whether you have a straightforward, small scale funding need, or require a complicated ‘Jigsaw’ funding plan made up of a combination of financial products to buy an existing business, we can work with you to find the answers and streamline your application.

We want to work with you to help your microbrewery business succeed.