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Small Ramona Brewer Gets Financial Assist From Big Player

Among the dozens of craft brewers serving up suds during the annual San Diego Beer Week – which kicked off Nov. 7 and was slated to run through Nov. 16 – are several smaller players who required a little financial help from friends and family to stake their claim in the increasingly competitive industry.

ChuckAlek Independent Brewers of Ramona, a relatively tiny but growing purveyor of old-European-style stouts and porters, recently found financial friends at Boston Beer Co., maker of Samuel Adams beers and the nation’s largest craft brewer, led by founder and Chairman Jim Koch.

ChuckAlek was able to secure a $10,000 loan through the nonprofit business microlending organization Accion San Diego, as part of Boston Beer’s ongoing Brewing the American Dream program aimed at supporting early-stage brewers.

In addition, the Ramona company was chosen from among numerous U.S. applicants to receive the Samuel Adams 2015 Brewing and Business Experienceship – a mentoring and internship program. ChuckAlek founders Grant Fraley and Marta Jankowska will spend much of the year in Boston receiving direct coaching from Boston Beer’s brewers and financial executives.

The Samuel Adams program has provided $3 million in microloans since 2008, and ChuckAlek is just the fourth craft brewer – and first local company – to receive the internship. Fraley said ChuckAlek, which began operations in 2013, has already put the microloan to use by hiring new sales personnel, and the company has expanded keg distribution to 30 accounts throughout San Diego County.

ChuckAlek is named for the grandfathers of the two founders – Fraley is head brewer and Jankowska is CEO. The company does not release revenue figures but now employs five and is on track to brew and distribute 250 barrels in 2014, up from 150 last year.

“It was a challenge in terms of getting funding from traditional lenders like banks, partly because of all of the competition,” said Fraley, noting the founders started the company with a combination of personal savings, loans from friends and family, and other “angel” investors.

Small brewers such as ChuckAlek represent the bulk of the more than 80 craft beer makers now based in San Diego County, with more in the pipeline. For most brewers, the obstacles to obtaining startup and expansion financing are considerable, due to factors including intense competition and industry volatility.

“The smaller hospitality and food-and-beverage businesses are generally considered a higher credit risk for the traditional lenders,” said Elizabeth Schott, CEO of Accion San Diego.

Schott said food and beverage businesses currently comprise about 20 percent of Accion’s overall portfolio of $4.2 million in outstanding loans, and Accion has recently funded four clients within the craft brew industry.

Accion has worked with Boston Brewing for the past two years, and Samuel Adams employees frequently visit San Diego County to participate in Accion coaching programs aimed at entrepreneurs in the food, beverage and hospitality industries – providing help with areas such as marketing, ingredients, sourcing, labeling, distribution and financing.

Schott said many of those starting breweries have no business-operating history and are frequently looking to turn home-brewing hobbies into businesses. Accion microloans – available in sizes from $300 to $75,000, with most local brewery loans ranging from $5,000 to $20,000 – serve as a supplement to self-financing sources for supplies, equipment, renovation and other startup needs.

Two to three years is the average loan tenure for the fixed-rate loans, at interest rates ranging from 9 to 19 percent depending on the applicant’s credit history.

Brian Mulvaney, a San Diego-based senior vice president in Bank of America’s beverage finance group, said the bank currently has in place approximately $100 million in outstanding craft beer industry loans nationwide.

Generally, however, a craft beer maker needs to reach an annual production level of around 10,000 barrels to meet revenue and profit thresholds required to qualify for large traditional bank loans and credit lines.

“It’s like most small business lending; lenders need to know they’ll be paid back,” Mulvaney said. “The borrower needs to show the ability to become profitable on a stand-alone basis.”

Craft beer loans approved by Bank of America are typically for around $20,000 with three- to five-year terms, but for some of the nation’s largest brewers, loan amounts can go up to $200,000 and sometimes into the tens of millions under the right financial circumstances.

Loan applications among small brewers have been rising in recent years, he said, but in most cases the smaller firms will have a better chance of obtaining needed funds if they work through programs of agencies such as the U.S. Small Business Administration.

San Diego Beer Week is the largest annual event among several brew-oriented gatherings held in the local region, featuring beer tastings, food pairings and live music, among other festivities.

National University System Institute for Policy Research estimates that San Diego Beer Week, featuring more than 500 events, brings more than 20,000 participants to San Diego County. Citing an analysis of the 2011 event, the institute estimated that Beer Week generated 3,612 hotel room nights and yielded $469,307 in additional hotel revenue.

San Diego County’s craft beer brewers saw sales grow from $680.9 million in 2011 to $781.5 in 2013, a rise of nearly 15 percent, according to the policy research institute. The local region, as of December 2013, had 82 craft-brewing companies employing 2,279 workers, up 40 percent from 2011.

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