CDFI lending impacts brewery, distillery projects

[This article is Part 1 of a multi-part series]

What do these five Appalachian-region businesses have in common?

• Big Timber Brewing in Elkins, WV;
• Ridge Runner Distillery in Farmington, PA;
• Bear Waters Brewing in Canton, NC;
• Christian Klay Winery in Chalk Hill, PA, and
• Little Fish Brewing in Athens, OH.

They each received start-up or expansion funding from one of two regional Community Development Financial Institutions (CDFI) that target lending to small brewery and distillery projects in our area. CDFIs are private, non-profit entities that focus their lending on economically distressed regions or underserved populations and seek out projects that produce broader positive benefits to the communities and region. They can offer mission-driven entrepreneurs access to capital at competitive rates, especially for projects that do not qualify for traditional bank financing.

CDFI impact on brewery development landscape

You should get familiar with these two CDFIs: The Progress Fund of Greensburg, Pennsylvania, and Natural Capital Investment Fund (NCIF) of Shepherdstown, WV. We are fortunate to have them lending in WV.

Natural Capital Investment Fund, which opened in 2000, has been delving into beverage-alcohol projects in West Virginia and other states for a while now. NCIF president & CEO, Marten Jenkins, is excited about the brewing industry’s promise of job creation, among other things.

“A brewery can start with a small number of staff,” Jenkins states, “but with growth, see that balloon to multiple brewers, taproom employees, and bottling and canning operations.  It’s a labor intensive industry, and as with all products that are ‘craft’ not something easily automated.”

In West Virginia, NCIF is currently involved with brewery expansion projects at Big Timber Brewing and Berkeley Springs Brewing.

The Progress Fund is the latest CDFI to enter West Virginia’s brewery, distillery, and winery market. David Kahley, president of The Progress Fund, is very anxious to get involved with a brewery project here. Last December, The Progress Fund announced its new Craft Beverage Fund as an initiative, in part, to connect West Virginia brewers, distillers, and wine makers with the financing they need to grow.

“We see the opportunity of these small breweries, and we want to see them grow and prosper,” Kahley said.

Beginning 12 years ago with a loan for the start-up of Boyd & Blair Vodka Distillery in Pittsburgh, The Progress Fund has now done loans to 12 different wineries, breweries, and, distilleries.

“It’s one of our sweet spots,” says Kahley. “We want to do a lot more of it and make it a specialty of The Progress Fund.

“We’re on board with booze-driven ideas… as long as they make sober sense.”

Broader benefits of brewery development important

Beyond growing employment and adding to a community’s tax base, there are other reasons our CFDIs like brewery projects. As an affiliate of The Conservation Fund, NCIF prioritizes funding business projects it views as sustainable — ones which make a positive contribution to the environment. That brings to light another brewery connection that Marten Jenkins appreciates.

“Brewers need clean water, which makes them concerned with local water supplies,” he says. “And, although this might not be on the minds of local brewers when opening, supply at the local level means your beer consumption has far fewer miles to travel. Travel down to the local taproom with your growler, you’ve eliminated the waste of packaging that comes with big brewers, and the carbon emitted from large transport networks.”

About 15 years ago, The Progress Fund began lending in West Virginia mostly in the tourism sector — rafting companies, bed & breakfast inns, sightseeing activities, small restaurants, and such. Now they want to increase their focus on breweries and distilleries, which they see making positive impacts on tourism.

Last year, The Progress Fund beefed up its in-house expertise in the small brewery’s role in tourism development by hiring Shea Higgins, who, when previously working for Digital Relativity, was a leader in developing the brewery passport program for the West Virgina Division of Tourism.

NCIF’s Jenkins also likes small breweries’ connection to tourism development.

“The local craft brewery is assisting the state of West Virginia tourism industry with destination trips to breweries to taste the local recipes and themes of the brewery,” he says. “Many breweries are using local ingredients to promote the local area, and matching to pair with local food items. The rural towns of Davis and Thomas are an example of how three local breweries can assist in local tourism, adding value for a destination trip to the area.”

Getting more breweries in West Virginia

NCIF sees West Virginia as a state still young in the craft brewery industry, a state which is today less filled with breweries compared to our neighboring states. Marten Jenkins believes there is “still room to grow.” The Progress Fund’s Kahley sees the same kind of opportunities.

The reasons West Virginia lags behind the nation in development of local breweries is complicated, but likely has much to do with the state’s more rural make up, one without large urban areas. When you look at the number of breweries per capita, you see large sections of West Virginia have some catching up to do.

From his experience with the industry, David Kahley sees that a major stumbling block for small beverage-alcohol producers, especially for start-ups, is lack of access to capital. He feels local banks often don’t understand the industry and are especially hesitant to make loans in a start-up situation. Because brewery businesses have so many working parts, and because they are new and different, local banks tend to shy away from them.

“Brewery start-ups benefit from a different kind of lender,” Kahley says. “Because of their uniqueness and their own creative plans, they need a lender that’s going to be responsive and creative to their needs.”

While NCFI often does loan partnering with local banks and other financial institutions, it will also take on an entire project itself. The Progress Fund seems to prefer going it alone on its alcohol producer projects.

“We come in, and we want to do the whole loan,” Kahley says.

He believes, that way, he can be far more flexible if there are issues and help get the business to their next growth phase and ready to borrow more to fund a business expansion. Kahley says CDFIs don’t see breweries as a source of profit, but want to see them to succeed, create jobs, and build the local economy.

Technical Assistance – Both NCIF and The Progress Fund emphasize their organizations’ broad commitment to the businesses they get involved with. Not just lending, but helping ensure the overall business health.

NCIF emphasizes its business advisory services which help its borrowers with things like structuring business finances, bookkeeping set up, management strategies, websites, and social media strategy. The Progress Fund provides free business coaching and advice from its in-house team’s 20 years of experience in the industry.

Both of these CDFIs are good with networking and getting their borrowers in touch with other helpful programs, such as those of Small Business Development Centers, USDA, community colleges, and local economic development agencies.

Both NCIF and The Progress Fund understand the operation and financial needs of small breweries. They make great lending partners for local beer.

Seeking creative, passionate people with smart projects

Both these CDFIs agree pretty much on the sweet spot for brewery projects they like to work with as start-ups. From their preferences and from national data on successful brewery start-ups today, Brilliant Stream will profile the preferred brewery model in Part 2 of this series (coming next week).

CDFI Links

The Progress Fund of Greensburg, PA

Natural Capital Investment Fund of Shepherdstown, WV