United States: A Flight Of Financing Options

Last Updated: June 3 2015
Article by Mindy F. Rice and Robert J. Heinrich

Article #6 of Hopping on the Brewery Bandwagon Series

Finding a funding source is often one of the primary challenges faced by new breweries and brewpubs. The last article in this series explored friends and family and angel investors, and this article will discuss a range of additional financing options, from Small Business Administration loans to crowdfunding to various types of tax credits and green energy incentives. The type of financing options that are available to and appropriate for a brewery or brewpub will vary according to the specific financing needs, the ultimate business goals, the size and stage of the business, and the preferences of the business owners.

SMALL BUSINESS ADMINISTRATION LOANS

Breweries and brewpubs that are relatively new and do not have the cash flow or assets to support a traditional bank loan often look to programs of the Small Business Administration (SBA). There are several SBA loan programs, each with its own limitations and qualification requirements. In each case the lender will not be the SBA directly, but instead will be another institution, with the SBA providing credit support to the lender. The two most common types of SBA loan programs are known as CDC/504 loans and 7(a) loans.

CDC/504 loans can be used by breweries to acquire premises or equipment. CDC/504 loans must be used to acquire real estate or capital assets, such as equipment, and usually consist of a senior private sector loan, an equity contribution from the borrower, and a junior loan from a Certified Development Company. A list of Certified Development Companies is available on the SBA's website at https://www.sba.gov/tools/local-assistance/cdc. CDC/504 loans generally have a limit of $5 million.

The other principal SBA program is more flexible in the purpose of the loans. Like CDC/504 loans, 7(a) loans can be used to acquire real estate or capital assets, but unlike CDC/504 loans, they can also be used to purchase a business, or for long-term or short-term working capital needs. The maximum amount available under the 7(a) program is $5 million, although the average loan size is around $325,000.

CROWDFUNDING

Wisconsin's primary crowdfunding statute allows Wisconsin businesses to raise up to $1 million from Wisconsin residents, although the dollar amount can be increased to $2 million if audited financial statements are provided. The limit on contributions is $10,000 unless the investor is an accreditor investor or a certified investor. The offering must be made via a website that is registered with the Wisconsin Department of Financial Institutions (WDFI) as an Internet site operator. The statute requires the business to provide a disclosure statement containing specific cautionary statements prior to the sale of the securities. The statute also contains a requirement that the business that has issued crowdfunded securities provide a quarterly report to the investors and to the WDFI within 45 days after quarter end containing a discussion of the financial condition and operations of the business, and disclosing certain compensation information with respect to the officers and directors of the company. Two Wisconsin brewers have registered offerings on the WDFI's website.

Another financing option for small businesses that have a loyal customer base would be Kiva Zip, which is a form of crowdfunded loans. Kiva Zip is a nonprofit organization allowing small businesses to borrow zero interest loans, with individuals choosing the amount they want to contribute as a lender. In most cases, the loan will need to be endorsed by a trustworthy organization familiar with your business. Some organizations that have served as endorsers for other Wisconsin food and beverage related enterprises on Kiva Zip include the Wisconsin Women's Business Initiative Corporation and local chambers of commerce.

HISTORIC TAX CREDITS

One under-appreciated financing tool is federal and state historic tax credits. Craft brewers and brewpubs—striving to use and create spaces with character—often rehabilitate, refurbish and retrofit historic, older buildings. If certain conditions are met, historic tax credits can return a portion of the cost of building restorations to a building's owners. As a side benefit, banks are more amendable to making loans when such tax credits are part of the overall financing arrangement.

The federal historic tax credit program awards federal income tax credits to a building's owners in an amount of 20 percent of the eligible costs of rehabilitating a historic building. Likewise, the Wisconsin historic tax credit program returns 20 percent of such costs to owners as a Wisconsin income tax credit. Thirty-three other states have similar programs.

The developer can sell the tax credits to raise funds at the start of a project. This is commonplace where the tax liability of the recipient is less than the amount of the tax credit. In such situations, the recipient sells the credits to an entity that has a larger tax liability—for example, an insurance company, a bank, or even a subcontractor.

The smallest approved tax credit amount under the Wisconsin program since the start of 2014 was $13,000 (in fact, there were three projects where the approved credit amount was below $15,000). So while there are upfront costs associated with qualifying for the historic tax credit programs, such costs are not necessarily prohibitive.

GREEN ENERGY INCENTIVES

Finally, craft breweries and brewpubs should consider environmental and green energy incentives. For example, Focus on Energy is a program offered by Wisconsin utilities to promote energy efficiency and renewable energy. Craft breweries and brewpubs have used programs offered by Focus on Energy to obtain cash-back incentives and technical expertise. Some applicable programs offered by Focus on Energy are:

  • Business Incentive Program. Custom incentives based on estimated first-year energy savings associated with a project/technology, featuring a per-project maximum incentive of $200,000 and a cap of $400,000 per applicant per year; and prescriptive incentives offering specific dollar amounts for completing certain qualifying energy efficiency measures.
  • Renewable Rewards Program. Incentives for geothermal heat pump and solar electric installations in an amount up to $650 through $2,400 (depending on the technology).
  • Renewable Energy Competitive Incentive Program. A competitive bid process for incentives for geothermal, biogas, biomass, wind, solar electric and solar thermal technologies in an amount up to $500,000 or 50% of the total project cost.
  • Design Assistance Program. Financial and technical support to enhance the net energy efficiency of newly constructed and substantially renovated buildings.

If you have questions about financing options or documentation, contact your Reinhart attorney or any member of the Banking and Finance Department or Food and Beverage team.

Stay tuned for the series' next article on Site Selection: Purchasing, Leasing and Zoning Considerations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Mindy F. Rice
Robert J. Heinrich
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.