Craft Brewery Seller Financing and Earnouts
In some brewery sales, the seller agrees to receive part of the price over time instead of all of it at closing. Craft brewery seller financing can help a buyer bridge the gap between the price and what a lender will finance, show that the seller has confidence in the business and give the seller a continuing reason to support the transition. Earnouts, which tie part of the price to future results, are another tool some parties consider. Both carry trade-offs and need careful drafting.
This article is general information for buyers and sellers of existing, operating craft breweries, brewpubs and taproom breweries. Deal terms vary, and loan programs and lenders may limit how seller financing and earnouts are used. Nothing here is legal, tax or financial advice; buyers and sellers should work with qualified attorneys and accountants.
How a Seller Note Works
A seller note is a loan from the seller to the buyer for part of the purchase price. It sets out the amount, interest, payment schedule, maturity and what happens if the buyer defaults. When a bank or SBA lender also finances the purchase, the seller note is typically subordinate, meaning the senior lender is paid first and the seller’s rights are limited by an agreement between the lender and the seller.
Seller Notes in SBA Transactions
SBA program rules may affect how a seller note is structured, whether it can count toward the buyer’s equity and whether payments can be made during certain periods. Rules change over time and lenders apply them to each deal. See our article on SBA loans for craft breweries.
Why Seller Financing May Fit a Brewery Sale
- Valuation gaps: the seller’s price may exceed what documented cash flow supports for a lender
- Transition support: a seller who is owed money has reason to help with recipes, staff and distributor introductions
- Uncertain items: distributor changes or a pending permit issue may make parties want to share risk
Our guide to craft brewery valuation explains how price and documented earnings interact.
Earnouts
An earnout makes part of the price depend on future performance, such as taproom sales, wholesale volume or retention of key accounts. Earnouts can help when parties disagree on the outlook, but they can also lead to disputes over how results are measured and how the buyer runs the business. Some lenders and loan programs limit or prohibit earnouts in financed acquisitions, so buyers should raise the idea with their lender early.
Distribution Risk and Deal Terms
When wholesale revenue depends on distributor relationships that may be affected by the sale, parties sometimes consider seller financing terms or other protections. Have counsel review how distributor agreements and state law apply before relying on any structure. See our article on brewery distributor agreements.
Terms Sellers Should Consider
- The buyer’s experience, equity and financing plan
- Subordination terms required by the senior lender
- Security, if any, and personal guarantees from the buyer
- What happens if the buyer sells the brewery again or defaults
What Lenders Look For
Senior lenders review the seller note’s terms to confirm that the business can service all debt and that the note fits their policies and program rules. Our article on craft brewery loan requirements explains what else they review.
For Sellers Preparing a Sale
Sellers who are open to carrying part of the price may attract more buyers, but they should understand the risks of being paid over time. See our article on how to sell a craft brewery.
US Professional Funding helps buyers structure financing for the acquisition of existing, operating craft breweries, including deals that involve a seller note. Learn more about our craft brewery acquisition financing.
