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Craft distillers should meet with lenders early

February 11, 2020

By Scott Montgomery for Puget Sound Business Journal | Puget Sound Business Journal

Scott Montgomery

Scott Montgomery is a vice president and commercial banking officer at the Peoples Bank Ballard Financial Center.

The market for craft spirits is thriving in Washington. According to the American Craft Spirits Association, the state ranked third in the country with 122 craft distillers, just behind California and New York. It’s safe to say that craft spirits are on a similar growth trajectory that craft beers started experiencing a few years ago.

The craft beverage industry, however, is not without its challenges. Legislation failed to pass in Olympia last session that would have allowed local distillers to open additional tasting rooms and serve sample cocktails to highlight their spirits. As a result, distillers must find new ways to gain visibility. We are already seeing some partner with bartenders and local restaurants to create signature cocktails so customers can gain a greater awareness and appreciation of their products.

Lending can also give customers the boost they need in the marketplace. Bankers meeting with craft beverage producers look to see if they have a viable growth plan in place. Do they have purchase orders ready to go? Are they close to, or have they reached profitability? Has enough product been laid down to meet demand in the marketplace, or are they turning away orders? What’s the relationship like with their distributor?

A good community lender will ask the hard questions and help create a growth plan if one isn’t already in place.

This can be surprising to some customers who think they need to have it all figured out before they approach a lender. Business owners, no matter what industry they’re in, should always meet with a lender early on. This allows both the business owner and the lender to identify the best financing options. Some leases, for example, have restrictions that can prohibit financing. A lender who believes in your mission from the get-go can serve as a partner with you as you grow, helping you make wise decisions and avoid potential obstacles.

Growing competition in the marketplace also necessitates a close banking relationship. Innovation is a must — both in terms of the end product, but also the go-to-market strategy. Is the business owner’s goal to be a neighborhood brewery or distillery, or a high-volume regional operation selling heavily into the retail space? Brewers, especially, need to be paying attention to the shifting landscape with the continued competitive pressures in the craft beer space. While brewers still promote their bestsellers, many will also showcase their creativity with special and seasonal releases.

One need only look at a packed neighborhood taproom during a new release to see how customer demand is fueling the need for constant innovation. New releases and innovation certainly help with visibility and can even showcase strong management, which is always a plus on a lending application.

The strength of the craft beverage market in Washington is not just welcome news to aficionados, but it is having a tangible economic impact in our state. As the industry becomes more attractive to lenders, new craft beverage producers are emerging, and successful producers are expanding their operations.

Now more than ever, craft distillers and brewers need to build a relationship with a lender early in their growth cycle and be ready to respond to changing market conditions.