Credit unions should raise a glass to the ongoing craft brewery expansion – and its implications for the SBA loan business.
Craft breweries now represent 12.2% of all beer produced in the U.S., up from 5.7 % in 2011, according to the Brewers Association. The nation is home to 4,225 craft breweries that sold $22.3 billion worth of beer in 2015 – a 16 percent increase over the previous year. And credit unions have been aided by the U.S. Small Business Administration (SBA), which offers breweries guaranteed loan repayment on SBA-approved loans.
"For a startup brewery, the minimum capital investment [of real estate and equipment] is around $1 million," said Joe Infante, a Grand Rapids-based attorney who leads the alcoholic beverage regulation team at Miller, Canfield, Paddock and Stone PLC.
"Nearly all startup craft brewery financing deals involve SBA loans," said Kenny Leonard, vice president of commercial loan services at the $419 million Kalamazoo-based Educational Community Credit Union. Leonard, a veteran SBA lender, has worked on six brewery projects in his career, including Tapistry Brewing Company, which started production three years ago in Bridgman, Michigan. Leonard said he's comfortable lending to the industry because he's brokered multiple successful deals in that sphere.
Between the 2009 and 2014, the SBA backed 68 loans to craft breweries in Michigan, including 19 last year, according to data supplied by the agency.
And the consumers buying alcohol, especially beer, are virtually all millennials. Mintel's 2013 report on millennials and beer shows that U.S. craft beer consumers are between 25 and 34 years old. Over 40% of these consumers said they drink craft beer because it just tastes better than regular beer.
Additionally, when ordering food at local restaurants, a Brewers Association study showed, over 50% of millennials order their favorite craft beer, compared with the 22% who tend to try a new craft beer each time. This illustrates the brand loyalty of millennials – for craft beer and, potentially, credit unions.
"Local, craft, cooperation, individuality — these are millennial values," said Mike Kallenberger, a former Miller Brewing executive who now consults for craft breweries. "They see their personal values reflected in craft beer and every other small-scale artisan product on the market. It's not so much anti-corporate as a search for authentic products that speak to them. Knowing who made what they eat and drink — that's craft."
In 2014, 456 microbreweries opened in the U.S., while just 23 companies closed, according to the Brewers Association. Closings have averaged 22 per year over the last five years.
The SIU Credit Union in Ava, Illinois, with $318 million in assets, has also tapped into the brewery market by financing the Carbondale Craft Beer, makers of Little Egypt Beer.
Microbreweries also tend to be safer bets because their equipment, mainly composed of raw standard stainless steel, carries a high scrap value should the business go under.
Still, lenders have a responsibility to weigh the benefits and consequences of unbalanced business debt, and to decide in favor of whatever will encourage the business' growth, Leonard said.
Of course, credit unions can offer SBA loans to businesses other than microbreweries. In fact, CUNA has been working with the SBA to help credit unions take advantage of guaranteed loan programs for all types of industries.
The SBA typically guarantees 50 to 90% of the loans; the SBA-guaranteed portion of the loans does not count against a credit union's member business lending cap – currently set at 12.25% of a credit union's assets.
"Compared with other industries, breweries are an anomaly in their growth," Leonard concluded.
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