Artisan Spirit: Spring 2019

Page 131

Through the Lender’s Lens

PREPARING YOUR DISTILLERY FOR FINANCING WRITTEN BY TRACY SHEPPARD

S

ecuring financing to expand your distillery can be frustrating. Most banks don’t understand your unique business model and the challenges you face with spirits inventory and its sales cycles. However, with proper preparations and perspective you can navigate an easier path to getting the financing you need. Here’s how — by looking through the lens of the lender. Credit analysis is at the core of any loan process, and to ensure credit is strong, a lender must determine the risk associated with making the loan and the likelihood that the loan would be repaid. In business financing, it is not just a matter of evaluating the business, you also have to assess the borrower’s credit history and business operations. To do this, lenders look at five categories to evaluate the risk of a loan: character, capital, conditions, collateral and cash flow. Documents such as personal tax returns, personal financial statement (PFS), resume, business tax returns, interim profit and loss statements, balance sheets on business, and business plan help paint the picture of a borrower’s credit standing. Here’s what those categories mean and why you should pay attention before you seek financing for your distillery.

WWW.ARTISANSPIRITMAG.COM

Terminology REVENUE: The amount of

money generated from business sales and activity. Also referred to as income, sales, or “the topline.”

COST OF GOODS SOLD (COGS): Cost of the materials

to perform the services you deliver, and goods sold. This is the primary variable or direct expense for the business because it varies directly with sales volume. GROSS PROFIT: Money

sale. Also known as overhead costs or indirect expenses. NET INCOME: The resultant dollar amount after all other expenses have been subtracted from gross profit. NET OPERATING INCOME (NOI): A simplistic measure

of the company’s cash flow available. Calculated by add-backs to net income.

available for the company to meet its overhead and other general expenses.

MARGIN: Ratios created to translate dollar amounts into percentages to express efficiency.

OPERATING EXPENSES: General expenses of the business not directly associated with a

DEBT SERVICE: Total dollar

amount owed for principal and interest payments on debt.

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