Craft Distillery Debt Restructuring When Cash Is Tight
Distilleries face a cash challenge few businesses share: spirits may sit in barrels for long periods before they can be sold, while grain, barrels, bottles, payroll, rent and loan payments come due every month. Owners may also carry debt from an earlier acquisition, a line of credit, leases and short-term financing taken on to bridge slow periods. Craft distillery debt restructuring means reviewing those obligations and evaluating whether some could be replaced with financing that better fits the business’s cash flow. Our page on craft distillery refinancing and debt consolidation explains how we approach these requests.
This article is general information for owners of existing, operating craft distilleries. It is not legal, tax or financial advice, and every situation is different. Excise tax obligations and inventory accounting should be reviewed with qualified accountants, and owners facing serious financial difficulty should also speak with qualified attorneys.
Why Cash Gets Tight for Distilleries
- Aging inventory: cash spent on production today may not return as revenue until spirits are ready
- Seasonality: tasting room traffic and holiday ordering can create uneven months
- Distributor payment terms: wholesale receivables may take time to collect
- Tax timing: excise tax becomes due as product is removed for sale
- Stacked short-term debt: several obligations with frequent or high payments
Our article on distillery tasting room revenue explains how channel mix affects cash flow.
Step 1: Build a Complete Debt Schedule
List every obligation, including creditor type, original amount, current balance, payment amount and frequency, rate or cost, maturity, collateral, personal guarantees and prepayment terms. Include term loans, lines of credit, leases, credit cards, any seller notes, tax obligations and any merchant cash advances. A complete picture is the starting point for any conversation with a lender.
Step 2: Understand the Underlying Cash Flow
Restructuring works best when the core business is sound and the problem is mainly how the debt is structured. Owners should review recent financial statements, sales by channel, receivables and a monthly forecast that shows when aging stock is expected to be released. If pricing, sales or production planning need attention, those issues should be addressed alongside any financing changes. Our article on aging spirits inventory explains how lenders look at inventory.
Step 3: Evaluate the Options
- Refinancing: replacing one or more obligations with a longer-term loan, which may lower payments if the business qualifies
- Consolidation: combining several obligations into a single loan with one payment
- Working capital planning: arranging appropriate working capital for the gap between production and sales; see our page on craft distillery working capital and lines of credit
- Direct discussions with creditors: some creditors may consider modified terms, though they are not obligated to
Depending on the business and the debt being refinanced, options may include SBA-backed loans or conventional business loans. Eligibility depends on program rules, the purpose of the refinance, existing loan terms and lender review.
About Merchant Cash Advances
Some distilleries have merchant cash advances among their existing obligations. Lenders review these alongside other debt when evaluating a refinancing request. There is no guarantee that every obligation, including every merchant cash advance, can be consolidated or refinanced, and whether a particular obligation can be included depends on its terms, the business’s cash flow, program rules and lender review.
What Lenders Look For
Lenders evaluating a restructuring request typically want to see that documented cash flow can support the new payments, that existing debt was used for business purposes and that the business has a sustainable path forward. They will review tax returns, financial statements, a debt schedule, payment histories, inventory records and permit status. Our article on craft distillery loan requirements explains the documentation frequently requested.
Acting Before Problems Grow
Owners generally have more options when they address debt before payments are missed or tax obligations fall behind. Keeping financial and inventory records current and tracking sales by channel can make a meaningful difference in what may be possible.
US Professional Funding works with owners of existing, operating craft distilleries to review their current debt and evaluate refinancing options. Not every existing obligation will qualify to be refinanced, but we can help you understand which options may fit.
