news.cuna.org/articles/105920-cu-serving-up-biz-loans-to-microbreweries

CU serving up biz loans to microbreweries

May 14, 2015

GRAND RAPIDS, Mich. (5/14/15)--The craft brewing industry continues to flourish, and one Mich.-based credit union appears to have figured out how to tap the budding market.

Kenny Leonard, vice president for commercial loan services at Educational Community CU, Kalamazoo, explained to MiBiz.com recently that with the help of U.S. Small Business Administration-approved loans, his credit union has been able to provide financing to six brewery projects.

Leonard said that nearly all financing deals for microbreweries involve SBA loans, and in Michigan the SBA backed nearly 70 loans to craft breweries between 2009 and 2014.

But it’s not necessarily the guaranteed loan repayment from the SBA that makes these deals successful. That, Leonard said, can be attributed to the current strength of the industry. 

Compared with other industries,“breweries are an anomaly in their growth,” he said.

Backing that claim, the Brewers Association reports that more than 450 microbreweries nationwide opened their doors in 2014, while only 23 of them failed (MiBiz).

In addition to the recent growth, though, microbreweries also tend to be safer bets because the equipment lenders are financing--mainly raw standard stainless steel--carries a high scrap value should the business go under.

Still, lenders have a responsibility to make sure it makes more sense for a business to take on more debt than to pay down existing debt, while at the same time helping the business grow, Leonard said.

Credit unions can leverage SBA loans for other businesses besides microbreweries as well. In fact, CUNA has been working with SBA to help credit unions take advantage of its guaranteed loan programs.

The programs can be beneficial for credit unions, as the SBA typically guarantees 50% to 90% of the loans, and the SBA-guaranteed portion of the loans does not count against a credit union's member business lending (MBL) cap, currently set at 12.25% of a credit union's assets (News Now Jan. 20).