Getting a bank loan for a brewery: what the bank looks at

Banks lend against repayment, not enthusiasm

A bank wants to know three things. Can the business repay the loan from its own cash flow? What happens if it cannot? Do the people running it know what they are doing? Everything in your application answers one of those questions.

Brewing adds a fourth, which is licensing. Alcohol is regulated. In India it is a state subject, so licences, excise arrangements and some label and sales rules differ from state to state and change over time. A lender will want to see that the licences you need are granted or clearly on their way. Check the current position with the state excise department or a licensing adviser. Do not assume that a friend's experience in another state applies to you.

The project report is the centre of the file

Most lenders ask for a detailed project report, often called a DPR. It sets out the product, the market, the site, the equipment, the staff, the cost of the project, the means of finance and the projected profit and cash flow for the loan period. It should read as one consistent story. If the capacity in the equipment section does not match the volume in the sales section, the credit officer will notice.

Keep the assumptions visible. State the price per litre and the volume ramp. State the cost of ingredients and packaging too. Add the losses between brewing and sale. An assumption you can defend line by line is worth more than a large number you cannot.

Repayment cover: the number lenders calculate

The debt service coverage ratio, or DSCR, compares the cash the business generates with the loan instalments due. Cash available for debt service divided by instalments due gives the ratio. Lenders usually want comfortable headroom above 1.0, but the level they ask for varies by bank and by loan type, so ask.

Here is an illustration with round, hypothetical numbers. If operating cash flow before loan payments is 1,500,000 a year and instalments total 1,000,000, the ratio is 1.5. If sales come in 20 per cent below plan and cash flow falls to 900,000, the ratio drops below 1.0 and the business cannot meet its instalments. A lender will test your plan for exactly this, so run the test first and show it. Our guide to brewery break-even shows how to find the volume at which this stops happening.

Security, margin money and your own stake

Lenders usually ask for security: the equipment being financed, sometimes the property or a personal guarantee. They also expect the promoters to put in their own money, called margin money or promoter contribution. How much depends on the lender and the scheme. A promoter who brings a meaningful stake of their own signals confidence. One who asks the bank to fund everything signals the opposite.

Be ready to show where your share comes from. Savings, family funds and investor money all need a paper trail.

Working capital is a separate request

A term loan pays for equipment and fit-out. Stock, duty and receivables need a working capital facility, which has its own limit and its own review. Many young breweries ask for the first and forget the second. The result is a fully built brewery with no money to buy malt. Read our guide on working capital and size both requests together.

What to prepare before you walk in

• A project report with a monthly cash flow for at least the first two years.
• Quotes for the main equipment, plus the layout or site documents.
• The status of every licence and approval you need, with dates.
• Identity, address, income and bank records for the promoters.
• A sensitivity case showing a slower ramp and a price cut.
• A short note on who brews, who sells and who manages money.

Government schemes and subsidies exist for some kinds of manufacturing and for some borrowers. Their terms change and differ by state, so ask the bank and your adviser which, if any, apply. Do not build your plan on a subsidy you have not confirmed.

Common reasons applications stall

The cost of project does not match the quotes. The licence path is vague. The sales plan assumes full capacity from month one. The promoters have no brewing or hospitality experience and no one on the team to cover the gap. Each of these is fixable before you apply. Each is expensive to fix after a refusal. A lender sees many applications and remembers the ones that were tidy. Ask a trusted outsider, ideally someone who has read credit files, to read your report cold and mark every question they would ask.

Common questions

How much can a brewery borrow?

It depends on the project cost, your own contribution, the cash flow in the plan and the lender's policy. No fixed share applies to every bank. Ask the lender what they require.

Do I need licences before the loan is approved?

Often the lender wants to see them granted or well advanced. The order differs by state and by bank, so confirm it early with both the bank and a licensing adviser.

Can a bank loan fund working capital?

Yes, usually through a separate working capital facility. Plan and request it with the term loan so the brewery can buy ingredients once it is built.

Will a project report guarantee approval?

No. It makes your case clear and testable. The bank decides on its own policy and its view of risk.