Funding no longer on tap for growing micro brewery as royal commission bites

Brewer Paul Bowker felt the sobering effects of the financial services royal commission after struggling to secure more funding from the banks for his growing business because it was regarded as a high-risk startup.

The co-founder of Brick Lane Brewing, which turned over more than $1 million last year, said it was "very, very difficult" to get funding out of the banks for a growth business.

Paul Bowker is the co-founder of Brick Lane Brewing.

Photo: Supplied

"When we went to the banks they ran a fairly hands-off assessment and put us into the category of a startup business with no track record and in order to fund us they were looking at personal guarantees and all the directors putting assets on the line," he said.

Mr Bowker and his co-founders had already raised $12 million from 25 family, friends and contacts to build their state-of-the art brewery in Melbourne and were eventually able to secure "several million" in additional funding from Westpac.

Brick Lane Brewing secured $12 million in funding from family, friends and contacts.

Photo: Supplied

He said the Financial Services Royal Commission has crunched the finance available for businesses.

"Any time lending practices are tightened up the way they are following the commission it makes it more difficult to get finance," he said.

"It's a very difficult position when you have a solid business plan, good backing, a market that is growing and you get put into the category of a high-risk startup and get fairly onerous interest rates and onerous guarantees put in place," he said.

Mr Bowker’s difficulty in getting finance is a common theme for mid-market businesses, according to research published on Tuesday by EY.

The EY Global Growth Barometer found 24 per cent of Australian middle-market companies nominated access to credit as the key external risk to their growth, up from 6 per cent in 2017.

The survey of 2766 businesses globally found 45 per cent are forecasting growth of more than 10 per cent this year, demonstrating substantial capacity for growth if they have the capital to do so.

Paul Bowker with one of Brick Lane Brewing's co-founder's, former All Black Dan Carter.

Photo: Supplied

Rob Dalton, EY Oceania growth markets leader said the royal commission was having a worrying effect on mid-market business leaders' perceptions about the availability of finance.

“This data demonstrates that there’s a real perception among our medium-sized businesses that banks have started a pre-emptive lending crackdown that is increasing the cost and reducing the accessibility of direct financing,” he said.

Despite these concerns, the research found 45 per cent of Australian mid-market businesses are forecasting growth of more than 10 per cent this year which exceeds the growth expectations of regional powerhouses India, China and Singapore.

But concerns around the difficulty of accessing credit are driving three quarters to consider an initial public offering to obtain growth capital, which is significantly higher than their global counterparts, where less than half of respondents are considering an IPO.

“Companies are exploring their options and alternative forms of finance beyond bank lending. There’s a huge amount of private capital out there looking for a home and middle-market businesses are looking to access this to fund their growth,” Dalton said.

Mr Bowker said access to finance is a key issue for Australia's breweries. 

"There are a whole lot of highly-talented brewers in Australia and once they are running a micro brewery to take the next step takes a lot of capital investment which is where a lot of them tap out in terms of growth," he said. "What you often see is the owners have to open up to external investment or as you see with Four Pines or Pirate Life they get bought out by some of the large international conglomerates which is a great loss to independent brewing in Australia."

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