When Brewery Loans Go Flat

The craft beer industry, once a hallmark of entrepreneurial success, is now grappling with an era of closures and consolidation. For the first time since 2005, more breweries shut their doors last year than opened, according to the Brewers Association. The industry’s challenges are multifaceted: declining beer consumption, increased competition from hard seltzers and spirits, and rising operational costs. Even well-established names like Cambridge Brewing Company in Massachusetts have closed after decades of business. 

Compounding the problem, the glut of used brewing equipment flooding the market has driven down resale values, creating challenges for lenders who rely on these assets as collateral. For banks managing loans to struggling microbreweries, the financial and strategic decisions are more complex than ever. 

A Brewer in Trouble: Alpert’s Advice 

In his latest Ask the Workout Window column for the RMA Journal, veteran workout leader Jason Alpert tackles the question of how to handle a distressed microbrewery borrower. Here are his main takeaways: 

• Get critical financial information. Before making any decisions, lenders should require updated financials, commission a new appraisal of the equipment (on a “net orderly liquidation value” basis), and request the borrower’s strategic recovery plan. These steps are critical for assessing whether restructuring the loan is feasible. 

• Tighten loan terms during restructuring. If restructuring is appropriate, Alpert recommends cross-collateralizing all loans, reinforcing covenants, and securing landlord lien waivers to protect the bank’s access to collateral. Any new capital for pivots—such as adding a kitchen or expanding distribution—should come from equity or external sources, not the bank. Short-term loan modifications (12 months or less) may also be warranted but must include updated documentation and strict oversight. 

• Explore alternatives to litigation. When a turnaround is unlikely, Alpert advises considering discounted payoffs as a way for borrowers to refinance or sell the business. This approach can provide resolution without the costs and delays of litigation, particularly in oversaturated markets where recovery values are limited. 

The Bottom Line 

As the craft beer market continues to evolve, lenders must approach distressed loans with caution and strategic foresight. With industry conditions squeezing borrowers and collateral values plummeting, collaboration and clear-eyed decision-making are critical. Alpert’s advice offers a practical roadmap for navigating these challenges, ensuring lenders can mitigate losses while supporting borrowers with potential for recovery.