Debt vs. Equity: How to Finance Your Brewery
Alright, you’ve got your barley roasted, your hops hopped, your yeast pitched, and your brews bubbling - you’re ready to start your brewery! Many startup breweries have a similar dream: their beers in a fridge ready to be picked up, a bustling brewpub or taproom, a loyal following of fans. Well, you’re going to need money to get there.
There’s a saying that goes, “all money is green, but not all of it is the same.” This is especially pertinent when deciding how to finance your brewery. Whether you’re an established brewery or just getting started, you need to decide what mix of equity or debt financing you want in order to fund your brewery.
So, we’ve laid out the pros and cons of equity and debt financing for breweries for you to use in your decision-making! We also talk about how crowdfunding offers a best-of-both-worlds situation to fund your brewery, strengthening your business while giving you a fast and trustworthy way to raise the capital you need.
If you choose to look for equity investors, you have the potential to gain new advisors in your investors. Since they’ll have ownership, they’ll also have a say in how the business is run. This can be both a help and a hindrance, which we’ll get into a bit later.
However, having these kinds of investors is nice because it means they’ll contribute to the continued support of your business, leading to stronger relationships. They’ll also likely bring in their network to the business, growing your customer base!
Another advantage of equity is that it gives you the possibility of getting the capital you need rather quickly and from few places. For example, you might be able to find an angel investor, although they’re rare for the brewing industry. Investors are nice because they really do give you the boost you need to get going, especially if you’re a startup, but you also need to have a really strong vision in order to get investors’ attention.
The main drawback to equity investing is that you will lose part of the ownership of your business, and therefore part of the profits. Instead of paying off investors for their investors like you would a loan, you’ll be giving them a percentage of the profits.
An investor, especially a major one, might also ask to have a say in how the brewery is run, limiting your entrepreneurial freedom. While as we mentioned earlier, it could be a major plus, giving you resources and advice you otherwise wouldn’t have, it also could keep you back from decisions you think are best for your company.
Investing also comes with an array of legal and accounting complexities that you’ll need to deal with if you go this route. It gets especially tricky the more investors you take on or the more equity you give out in exchange for funding.
An advantage that debt funding has which is quite similar to equity is that through it you can usually get bigger amounts of money from banks and SBA loans at once. You can get up to $5 million for an SBA loan, so they’re great for when you’re just getting started and you need to fulfill all the startup costs.
The other major pro to debt funding is that you don’t have to give up profits or ownership in your business like you would under equity. While of course, you’d be budgeting to pay off your loans from your revenue, you’d have much more freedom than you would otherwise and your business would remain yours.
The major challenge with debt funding is that it’s really challenging if you are a startup brewery and are trying to get loans through traditional routes like banks or Small Business Administrations. You could be an expert at brewing, but if you don’t have a lot of history with the business, a bank probably won’t give you the time of day.
What about crowdfunding? Enter Honeycomb!
Through crowdfunding, you can have the best of both worlds when deciding between equity and debt financing for your brewery. Sounds confusing, right?
While Honeycomb campaigns are technically a kind of debt funding where you take out a loan that you pay back over a certain amount of time, it also has some of the advantages that come with having investors. Here’s what we mean:
Crowdfunding allows you to strengthen your brewery’s relationship with your customers while also raising the necessary capital.
Whether you’re a brewery with an already established fanbase or a fledgling startup, you know that you need customers coming through the doors in order to keep the taps flowing. A private investor will usually be one or two people, but crowdfunding means you’ll have dozens or hundreds of brand advocates. By crowdfunding, you’re inviting your customers to become a part of your business, kind of like the equity investors we talked about before, which means they’ll be far more likely to continue their support of you along the line.
Honeycomb campaigns have reported an average 33 percent increase in revenue since their campaign occurred, which occurs because after investing in your business, your investors level up from just customers to brand advocates for your brewery.
Sounds great, right? The added benefit is that while your customers-turned-advocates might feel a sense of ownership in your brewery, resulting in increased revenue, they don’t actually hold any literal ownership. Meaning, they don’t have a say in how your business is run - that’s up to you and your partners!
One example of this is Back Alley Brewing Co., a brewery in Dormont, Pennsylvania. They were just a group of five friends who liked to make homebrews together before deciding to go into business together. Their Honeycomb campaign, which raised $200,500, allowed them to get their brewery off the ground, and introduced them to their community, who are soon to be their customers!
Crowdfunding helps you meet your financial goals quicker
You can get your crowdfunded money and start using it as soon as you hit your campaign’s minimum, meaning in less than 30 days since the launch of the campaign! This is incredibly important because unlike living in loan limbo where you can wait up to three months and then get denied for a loan, you can actually start using your capital to generate revenue.
This is especially helpful when you’ve got a big growth project coming up that requires you to get moving quickly. Aurochs Brewing Company, a gluten-free brewery, used their Honeycomb campaign to pay off existing debt, invest in marketing, and purchase a new mashing tun to expand their production. This allowed them to expand into 14 new states!
Are you ready to get the best of both worlds when it comes to financing your brewery’s growth?
At Honeycomb, we’ve helped breweries grow, whether they’re just a scrappy pack of homebrewers just starting out or established brewers looking to expand their business. Find out how we can help you fund your next brewery venture at www.honeycomb.com/beer