Bank loans for a brewery in India and what lenders ask for

Start with whether the bank will lend at all

Some banks and lending institutions keep alcohol manufacture on a restricted or negative list, either as policy or for particular loan schemes. Others lend to breweries but with extra scrutiny. Ask this at the very first conversation, before you spend time on paperwork. Speak to more than one lender, including any your company already banks with.

A bank loan is one option among several. Our guide to brewery funding options covers equity, partners and equipment finance.

The detailed project report

The core document is the detailed project report, usually called a DPR. Banks expect it to include:

• The project: location, capacity, equipment and timeline.
• The total project cost, broken into land or lease deposits, civil work, brewhouse, utilities, licences, pre-operative expenses and working capital.
• The means of finance: how much the promoters bring, how much the loan covers.
• Sales projections and their assumptions.
• Projected profit and loss, balance sheet and cash flow for the loan period.
• Repayment schedule and break-even.

Our guides to the brewery business plan and microbrewery cost in India help with the inputs. Many founders have a chartered accountant prepare or check the DPR in the format their lender prefers.

Promoter contribution

Banks expect the promoters to put in their own money, often called margin money. The share depends on the lender, the scheme and the project. Lenders read a strong promoter contribution as commitment. Be ready to show where your share comes from, with bank statements or documents for any funds raised from partners.

Security and guarantees

Lenders usually take the financed assets, such as brewing equipment, as primary security. Many also ask for collateral security, such as property. Personal guarantees from promoters are common too. Brewing equipment is specialised and harder to resell than general machinery, which some banks take into account. Ask whether any government credit guarantee scheme applies to your project. Eligibility for alcohol businesses varies, so confirm it in writing.

Documents lenders typically ask for

• KYC documents for the company and each promoter.
• Company incorporation documents and board resolutions.
• Income tax returns and financial statements for promoters and any existing business.
• Credit reports. Check your own score before the bank does.
• Lease deed or property documents for the site.
• Quotations from equipment suppliers.
• Licences, or evidence of in-principle approval, from the excise department and other authorities.

The licence question is often the hardest. Banks may want the licence before lending, while some approvals need the premises ready first. Talk to your lender and licensing consultant together about the sequence.

How lenders judge repayment

Banks look at whether the project's cash flow can cover loan repayments with headroom. One common measure is the debt service coverage ratio: the cash available for repayments divided by the repayments due. Lenders want it comfortably above one across the loan period. A brewpub's first year is often slow, so ask about a moratorium on principal repayments during construction and ramp-up. Our guide to brewery cash flow in the first year shows why.

Most projects need two kinds of borrowing: a term loan for equipment and fit-out, repaid over several years. The second is a working capital limit for malt, hops, packaging and duty payments while you wait for sales. Founders often forget the second. Excise duty and raw materials tie up cash before a single pint is sold.

Questions to ask every lender

• Do you lend to alcohol manufacturing businesses? If so, under which schemes?
• What promoter contribution do you expect for a project of this size?
• What security and guarantees will you need?
• Is a moratorium available during construction and ramp-up? For how long?
• What processing charges, insurance and other costs come with the loan?
• Can the loan be prepaid? On what terms?
• How long does sanction and disbursement usually take?

Write the answers down and compare offers on the total cost and terms, not only the interest rate.

Before the first meeting

Bring a clean DPR, a realistic sales case and a clear answer to the question every banker asks: what happens if sales are half what you expect? Founders who can answer that calmly get taken seriously. Use a chartered accountant for the numbers and get your own advice before signing anything.

Common questions

Do Indian banks lend to breweries?

Some do, often with extra scrutiny. Others keep alcohol manufacture on a restricted list. Ask each lender at the first meeting.

What is a DPR?

A detailed project report: the document setting out the project, total cost, means of finance, projections and repayment plan that banks use to assess a loan.

Do I need a licence before applying for a loan?

Banks often want licences or in-principle approval before disbursing. Plan the sequence with your lender and licensing consultant together.

Is this financial advice?

No. It describes the usual process. Use a chartered accountant and get professional advice before borrowing.