How to Finance Your Craft Distillery
Updated: Jan 11, 2022
As a craft distillery owner, you’re probably familiar with the need for finding external financing for your business’s growth. Whether it’s opening a new location, expanding your production, or purchasing new equipment, it’s going to require some cash. Read on to learn about projects that usually require financing, and how you’ll be able to fund them.
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Distillery projects for which you’ll need financing
New Location (or expanding your current one)
A lot goes into opening a location for your distillery, or even expanding one you’ve currently got. Maybe you’re looking for more production space, or you want to open a taproom to interact more directly with customers.
Whatever you decide, there are going to be build-out costs to deal with, among many other capital-intensive needs. This kind of project would be very suitable for some external financing.
Tall Pines Distillery, out of Salisbury, Pennsylvania, funded their outdoor dining area and their new boutique with two different Honeycomb campaigns! The first campaign they ran was for their outdoor dining area, and they had such great success with that that when they were looking to expand again, they ran a second campaign. That campaign was fully funded in only 5 days!
When you’re looking to expand your distribution - whether that means making things more efficient or entering new markets - getting capital you need for that will also be necessary.
Lucky Sign Spirits is a distillery in Millvale, Pennsylvania that crowdfunded with Honeycomb. They were expanding into a new, larger location for production so that they could efficiently expand their inventory. The $122,000 they raised went towards building out those new locations and making them suitable for their needs.
Guidance Whiskey, a Black-owned whiskey brand out of Nashville, crowdfunded $120,000 for their expansion, as they entered markets in new states and grew their marketing plan. Owner Jason Ridgel says, “If you look at [the Honeycomb campaign], we got 240 people to connect to the business. That means more to me than having a quarter-million dollars. Money is limiting - there’s only so much you can do with it, you spend it, you can invest it, or you can save it.”
As part of the aforementioned expansions for your craft distillery, you might also be looking to purchase new equipment, or upgrade what you’ve already got. This could mean new stills, bottling lines, or even new barrels to age your spirits.
Western Reserve Distillers in Cleveland raised $100,000 with Honeycomb Credit to purchase new barrels for their whiskey and their agave spirits lines. “We had a number of people that had asked if they could invest in the business, so we decided that for a portion of our 2021 capital needs, we would look to Honeycomb for that and run a campaign — more as a way to give back to those people that had supported us through the pandemic and helped us get through it,” says Kevin Thomas, co-owner of Western Reserve Distillers.
What financing options are available?
Now that you have an idea of what you could use external financing for to grow your craft distillery, how are you going to do it? Most people might think that a bank loan or an angel investor is the only way that you’d ever be able to access the large amounts of capital needed for your distillery. Luckily, you’ve actually got a few different options you can consider!
One thing all the distilleries we’ve talked about already have in common is that they chose to finance at least some of their growth with crowdfunding! Some businesses funded all of their needs with their crowdfunding campaigns, while others utilized it along with other, more traditional forms of financing because they wanted to reach out to the community.
You might be thinking of crowdfunding as a way of “handout,” and if you had platforms like GoFundMe or Kickstarter in mind, you’d be right! But, you might not be aware that there are other forms of crowdfunding that allow you to pay back your community - this is known as Regulation Crowdfunding.
There are two main forms of Regulation Crowdfunding - equity and debt. Equity crowdfunding is actually pretty popular with distilleries, because it has the potential to raise large amounts of capital that they need. However, it also means that you’re offering up potential profits and ownership stakes to a crowd.
Debt, or loan crowdfunding is what Honeycomb does. Instead of taking out a loan from a bank, instead you take it out from your community! Your customers, family, and other supporters can become investors and receive interest as you pay back your loan.
There are many perks to loan crowdfunding, including the fact that it’s accessible to small businesses at all stages of their growth. Crowdfunding with Honeycomb also gets you access to expert crowdfunding advice, marketing support, and closer engagement with your customers. We’ve seen this result in on average a 60% increase in year-over-year revenue with our alumni businesses.
For many entrepreneurs, the bank seems like the first option you’d take when looking for external financing. However, bank loans are increasingly difficult for small businesses to access, and if we’re being honest they’re pretty limiting!
Especially if you’ve been in business for less than two years, a bank loan is going to be really difficult to access. Banks often want you to have a financial history, and they’ll usually ask for some kind of collateral in case you default.
While at Honeycomb, we also do due diligence for every small business that applies to us, we also look at the bigger picture, beyond just the numbers in black-and-white. If you’re growing, and you can prove that you’re continuing to do so, we won’t shut you down even if you’re a younger business.
This was actually a problem that Lucky Sign Spirits, who we mentioned earlier, ran into, and they ended up raising a really successful Honeycomb campaign despite a rejection by the bank.
Private investors are another opportunity for external financing that many craft distilleries take. And if you’ve got the connections, great! But not everyone has an angel investor in their back pocket ready to drop a wad on their business.
While a private investor might be a good way of getting the money you need rather quickly, you also should keep in mind some drawbacks. First of all, they’ll usually invest in exchange for equity in your business, so that’s profits you’re missing out on. They also might want to have a say in how you run your business, and if you’re more of an independent kind of entrepreneur, that might not be to your liking.
Honeycomb crowdfunded small business loans allow you to access investors from your community (and nationwide) who won’t take ownership of your business or any profits. They’re just interested in making a return on their investment through interest - and of course supporting your distillery’s growth in the process.
We’ve got the solution to how to finance your craft distillery and more.
That’s a lot of information we threw at you there, but hopefully now you’re feeling better equipped to finance your craft distillery! Ready for more? Fill out the form below to learn more about Honeycomb Credit crowdfunded small business loans