This document discusses different financing options for craft beverage businesses, including equity, debt, asset-based lending, conventional lending, and SBA loans. It analyzes the risks and costs associated with each option for both the lender and the company. The document also presents three case studies of craft beverage businesses that received loans from Live Oak Bank for equipment purchases, facility expansions, and construction projects. The case studies provide details on the loan amounts, terms, interest rates, and intended use of funds.

1. Finance, the other F Word
Jeff Clark
Live Oak Bank Wine & Craft Beverage
John Fisher
Fisher & Company
Don Winkle
Spaulding McCullough & Tansil LLP
Craft Beverage Expo 2016
© 2015 Live Oak Banking Company. All rights reserved. Member FDIC

2. Equity vs. Debt
Equity = No Collateral = No Secondary
Source of Repayment
Value of Collateral = How Liquid Is It?
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3. Degree of Liquidity by Asset Class
In Descending Order
 Cash
 Marketable Securities
 Accounts Receivable – Purchase Orders
 Finished Goods – Case Goods
 Bulk Wine – Aging Spirits
 Equipment
 Real Estate
 Collectables – Art, Rare Items, etc.
 Lottery Tickets
 Penny Stocks
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4. Equity
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 Risk to Lender– Highest
 Minimal collateral if any
 Cost to Company – High
 Dilution of profits
 Potential reduction in decision making process
 Advantages
 Sometimes the only source of capital available
 Often far more capital available than can be provided by debt
 Synergies of experience, industry connections

5. Asset Based Lender
 Risk to Lender – High
 Mitigated by collateral value
 Cost to Company – Higher than conventional lender
 Lower advance rates
 Control of working capital
 More frequent reporting
 Advantages
 Less reliant on cash flow
 Generally will take more risk than conventional lender
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6. Conventional Lender
 Risk to Lender – Low
 Mitigated by historic and projected cash flow
 Mitigated by collateral
 Cost to Company – Lowest cost of capital
 Less frequent reporting than asset based lender
 Advantages
 Usually higher advance rates
 Relationship banking can provide price and structure leverage
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7. SBA
 Risk to Lender – Lowest
 Mitigated by historic and projected cash flow
 Mitigated by U.S. government guarantee
 Cost to Company – Lowest cost of capital
 In line with conventional lender
 Advantages
 Up to 100% financing
 Longest terms with no calls
 No covenants
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8. What do Equity Investors and
Lenders Seek?
Acceptable Return on Investment
Repaid as Agreed
Risk = Reward
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9. Management
 Industry experience
 Marketing, Sales, Operations, Finance
 Strategic Partners – Distributor, Accountant, Attorney, Consultants
 Regulatory and Compliance
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10. Business Plan
 Production
 Sales
 Strategy
 Action Plan with time line
 Documented Fact Based Projections
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11. Reporting Capabilities
 Quarterly or Monthly
 Accounts Receivable
 Accounts Payable
 Inventory
 Income Statement
 Balance Sheet
 Annual
 Compiled, Reviewed, Audited and Tax Returns
 Projections
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12. Case Study # 1 – Distillery Refi & Tenant Improvement
One year old distillery had an opportunity to move their tasting room to a high foot traffic
resort location. They had boot strapped the operation with a conglomeration of high
interest debt with short terms. Although they could service this debt it left no cash flow
for additional growth. They needed capital to do tenant improvements to the new
location, refinance existing debt and purchase additional production equipment. Based on
historic trends, projected cash flow, DTC and 3 tier distribution structure Live Oak was
able to provide a term debt structure with a six month interest only period.
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LOAN TERMS
Loan Amount $1,030,000
Loan Term 6 months I/O followed by 126 months of P&I (132 months total)
Loan Rate 5.50%
Loan Payment $10,779.17/month
Use of Proceeds
Use of Proceeds Borrower SBA Total
Refinance $0 $567,262 $567,262
Construction $0 $377,312 $377,312
Contingency $0 $37,731 $37,731
Working Capital $0 $5,657 $5,657
Soft Costs $0 $42,038 $42,038
Total $0 $1,030,000 $1,030,000

13. Case Study # 2 – Brewery Equipment & Leasehold
Improvements
Five year old brewery needed to expand to keep up with demand. Needed a 20 barrel
system to replace their existing 5 barrel. New system would increase production while
reducing labor costs. They also wanted to open a tap room to sell DTC. DTC sales would
enhance gross margins while expanding their client base. They had just achieved
positive cash flow but the local banks wanted to see a couple of years of profits. The
local banks did not want to finance the leasehold improvements.
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LOAN TERMS
Loan Amount $825,000
Loan Term 4 months I/O followed by 180 months of P&I (184 months total)
Loan Rate 5.50%
Loan Payment $6,962/month
Use of Proceeds
Use of Proceeds Borrower SBA Total
Equipment $0 $550,000 $550,000
Working Capital $0 $250,000 $250,000
SBA Guaranty Fee $0 $22,000 $22,000
Closing Costs $0 $3,000 $3,000
$0 $0 $0
Total $0 $825,000 $825,000

14. Case Study # 3 – Winery Construction & Expansion
Six year old winery with two existing liens needed to build out their production facility and
a tasting room. Established in the depth of the Great Recession it had struggled to
develop estate vineyards and grow sales. The expanded production would allow for
additional custom crush revenue. Utilizing projections, historic sales trends, letters of
intent, cost saving and inventory analysis Live Oak was able to provide a 3rd lien
construction/take out loan with a 25 year term, amortization, no balloon payments and no
financial covenants.
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LOAN TERMS
Loan Amount $3,467,500
Loan Term 12 months I/O followed by 300 months of P&I (312 months total)
Loan Rate 5.25%
Loan Payment $21,293.48/month
Use of Proceeds
Use of Proceeds Borrower Live Oak Bank Total
Construction $0 $3,000,000 $3,000,000
Contingency $0 $300,000 $300,000
Const Supervision $0 $5,000 $5,000
Interest only payments $0 $60,000 $60,000
Appraisal & Bus Valuation$5,000 $0 $5,000
SBA Guaranty Fee $0 $95,000 $95,000
Bank Legal $0 $5,000 $5,000
Title $0 $2,500 $2,500
Total $5,000 $3,467,500 $3,472,500

15. © 2013 Live Oak Banking Company. All rights reserved. Member FDIC