Raising money from friends and family for a brewery, done properly

Why it is different

Banks lend against security and investors invest after due diligence. Friends and family often lend because they trust you. That trust makes the money easier to get and harder to manage. When a brewery runs into trouble, as many do in their first years, a bank sends letters. A cousin sends nothing. The silence at family gatherings is worse.

The answer is not to avoid friends and family money. It is to treat it as seriously as any other funding, with clear terms written down from day one.

Only take money people can afford to lose

Breweries are capital heavy, licences take time and many fail or take longer than planned to become profitable. Our guide to why breweries fail covers the common reasons. Be honest about this before anyone hands over a cheque. Do not accept retirement savings, money set aside for children's education or a loan someone has taken against their home.

Say it in plain words: this money could be lost. If that sentence makes them hesitate, that is useful information for both of you.

Loan or equity

The two basic options are a loan or a share in the business:

• Loan. You agree an amount, an interest rate if any, a repayment schedule and what happens if you cannot pay. The lender does not own part of the brewery.
• Equity. They buy shares in the company. They share in profits and any sale. They also share the risk of loss. They may expect a say in decisions.

There are hybrid instruments, such as convertible notes or other structures that start as one thing and may become another. Each has legal and tax consequences. Indian company law and the rules on accepting money from many people can be complex. Our guide to brewery funding options sets out the broader choices.

Write everything down

Whatever you choose, put it in a written agreement. A loan agreement should state the amount, interest, repayment dates and what happens on default or early repayment. An equity investment needs a shareholders' agreement covering ownership, voting, dividends, future funding rounds, exit and what happens if a founder leaves. Our guide to brewery partner agreements covers what to agree with co-founders. Much of it applies here too.

Use a lawyer and a chartered accountant. Taking money from friends and family is still raising capital under Indian law. Doing it informally can create problems with tax, company filings and the rules on deposits and share allotments. This guide is not legal or financial advice.

Give them a real plan

Show friends and family the same business plan you would show a bank: capex, working capital, licence timeline, sales ramp-up and when they might see repayment or returns. If the plan says first repayment in month 24, do not say "in a year or so" at dinner. Our guide to the brewery business plan explains what to include.

Be realistic on timelines. Licence delays of several months are common. Build that into the plan rather than hoping.

Keep them informed

Send regular updates: quarterly is a good rhythm. Share progress, problems and numbers honestly. People forgive bad news delivered early. They do not forgive surprises. A short message saying "excise approval delayed by two months, here is our plan" protects relationships better than silence.

Invite them to a tasting, a brew day or the opening night. People who have seen the mash tun and tasted the first batch understand why things take time.

Separate the roles

Be clear about whether an investor is also expected to work in the brewery or give advice. A relative who invests may assume they can hire a nephew or change the menu. Write down what the money buys and what it does not. If someone has a formal role such as a director or adviser, define it. Mixing family, money and management without clear roles is a common cause of disputes in small businesses.

Plan for the hard conversations

Agree in advance what happens if the brewery needs more money, if it misses repayments or if it is sold. Decide what happens if an investor needs their money back early for a family emergency. These conversations are awkward at the start and much worse later. Having them while everyone is optimistic is the kindest thing you can do.

Common questions

Should friends and family get a loan or equity?

It depends on your plans and their expectations. Loans keep ownership with you but need repayment. Equity shares the risk and the reward. Take advice from a lawyer and a chartered accountant.

Do I need a written agreement with family investors?

Yes. A written agreement protects the relationship as much as the money. Informal arrangements can create legal and tax problems.

How much should I raise from friends and family?

Only what your plan needs and what each person can afford to lose without hardship.