With the significant rise in demand for artisan spirits in the UK coupled with the rapid growth of distilleries, distillers starting out in the market are seeking funding via both traditional and more innovative financing models. There are three main options for distillery start-up funding in Scotland and throughout the UK, each with its own advantages and disadvantages.
There are certain banks that are particularly active in lending to the distillery industry, they can commit to providing funding for small start-ups all the way to new large scale distilleries. As you would expect, any bank will need to see an in-depth, detailed business plan when considering any funding application. Banks are also interested in the experience of individuals involved in the business, so past success in the industry and useful connections will be advantageous when seeking to secure funding. You should be prepared to grant security over the assets of the business, most banks will require security over any land and buildings owned by the business and also a floating charge covering its stock and other assets. Given that stock will be a key asset of the business, regular stock valuations are also likely to be a requirement.
Private investors can be a source of either short or long-term finance for a start-up distillery, and can be helpful to provide a large injection of cash to the business whilst it is in the early stages of development. Private investors can also be invaluable in terms of providing guidance on raising additional funds, and managing the business side of the venture. The involvement of a high-profile investor can also make the business more attractive for further private investment. In return for this of course, an investor will likely demand a substantial stake in the business – they may have goals and ideas that conflict with your own, therefore you have to be sure that you wish to give up a large portion of equity.
Large drinks companies, such as Diageo through its Distill Ventures scheme, have now become involved in investing in new distilling ventures and this may also be a useful funding option to explore.
On the face of it, crowdfunding is a very attractive solution to raising funds for a distillery start-up. It enables you to access funds without giving up equity whilst establishing a fan base for your product. However it may not be the most reliable source of funds, with many failed attempts at securing crowdfunding for distillery start-ups. There are a few success stories, most of which are new ventures by experienced individuals with connections in the industry. A recent success story is the Holyrood Distillery which raised circa £5.8 million by way of crowdfunding and a further £1.5 million from the Scottish Investment Bank.