Brewery or Bank Borrowing

A number of clubs have a brewery or bank loan. Clubs should compare the cost of borrowing from a brewery or bank very carefully to ensure the maximum benefit is obtained for members.

The advantage of borrowing from a brewery is that the brewery is more familiar with the club and will often lend greater sums and under circumstances where commercial banks will not lend, or even foreclose. In addition the brewery loan is often interest free and capital repayments may be taken out of future bonuses or discounts provided certain barrelage quotas are met. However, beware of agreeing to deals with high unrealistic barrelage quotas, should a barrelage shortfall in future years could make the deal very expensive.

The disadvantages of borrowing from the brewery are that the club becomes tied and will not be in such a strong negotiation position to obtain the best barrelage discounts. A situation can result whereby it becomes worthwhile for the club to borrow from a commercial bank to repay the brewery and enter into new barrelage negotiations.

For example, a club may have accumulated brewery debt on the loan and trade account of £60000 and as a result may be receiving no or little discount. To borrow £60000 from a bank would involve repayments over ten years of approximately £8000 a year at 6% or £8800 a year at 8%. Assuming 400 barrels a year, a discount of £20 a barrel with interest rates at 6%, or £22 at 8% would be required to meet the loan repayments. The increased discount provides extra income more than sufficient to repay the interest and capital repayments to the banks.

The key to a successful re-funding policy is the negotiations with the banks and the brewers. To be successful with the bank the borrowing requirement needs to be for a sum and presented in such a way that it is an acceptable lending risk for the bank to take. Without brewery borrowing the club should be able to negotiate discounts from a position of strength. Beware, failure to comply with the conditions of the current agreement in operation with the brewery may result in penalty or interest clauses coming into operation.

Clubs should avoid a situation where it borrows from both a bank and a brewer or even two brewers as the club may find itself in a situation where it has the disadvantage of both types of borrowing. In addition we have seen a number of situations that in the time of need neither the bank nor the brewer is willing to advance further sums.

For those clubs where bank lending is appropriate significant benefits can be achieved, with the club having more funds to reinvest in premises or to provide services to members.