Lending Loans and Alcohol
Although the topics of alcohol and lending seem ostensibly non-related, one can still draw an important concept from the synthesis of the two subjects. As a frum Commercial Relationship Manager, not only do I want to facilitate commercial/business loans that are in line with Halacha, but moreover, it is incumbent upon me to consider the moral benefits and risks of the venture. Thank G-d, of course, it is my priority to directly and or indirectly sanction lending for the development of beneficial businesses, ventures, and endeavors.
With respect to the lending options available to a distillery, there are indeed many parallel aspects to the lending options available to most businesses. For start-up ventures in which the partnership does not have the resources to self-fund their enterprise, help is obtainable.
First, to mitigate financial institutions’ perception of high risk in such a venture, the SBA 7A and 504 programs exist to entice banks to approve loans that ordinarily would be declined. Although the SBA requires a detailed business plan plus financial projections for these loans, free help can be found through the SBA resource partner, SCORE. Your local SCORE chapter may be of immense help to applicants with regards to paperwork and planning.
Second, specific to the alcohol industry, some financial institutions may be wary of this industry. However, with a good sensible business plan, applicants who do not have negative credit issues, do not have a felony in their background and can contribute an equity injection in conjunction with the loan proceeds to fund the project’s financial sources, there is merit in supporting approval of the loan.
In both with SBA and non-SBA commercial lending, there are three major lending product lines of particular note:
- Commercial Mortgage – If one desires to own their business facility (which can be a very prudent move), this investment helps the borrower in both the short and long-term. Real estate adds to the overall value of the business. It demonstrates solid collateral during the company’s expansion stage when borrowing may be necessary and also during the maturity stage when debt is advantageously re-financed. Owning the business property adds an advantage during the retirement/succession stage, as the owner can choose to sell both their business and property or they can sell only their business but retain the real estate for renting to the acquiring company to provide an income stream. Whether you decide to lease or purchase a property for your business, it usually makes more sense – years down the road -to own the real estate than just have a bunch of rent receipts.
- Equipment loans – Either through a conventional loan or a dollar buy-out lease option, equipment can be secured to keep the business working effectively and efficiently in state-of-the-art fashion. The right loan product for this is a fixed loan, not a line of credit. Depreciation must match amortization, i.e. as the value of the equipment decreases, so does the debt associated with it. You do not want to be “upside down” on equipment in particular, since – unlike real estate that appreciates – equipment only depreciates.
- Revolving Line of Credit – This product, as previously mentioned, is not for purchases of fixed assets, but for revolving expenses that will soon be paid down. For example, if ingredients are purchased using the line of credit’s funds to take advantage of supplier discounts for upfront payment, that advance could be paid back with proceeds from sales of the finished product. A line of credit in an appropriate amount can also allow a company to keep quality accounts receivable in place and, thus, have the wherewithal to handle larger customers who pay full price, but after 60 – 90 days, etc.
Again, these products (in both regular and SBA varieties) can be obtained, depending on the strength of the applicants and the history of the business. The SBA guaranteed type, although more costly vis-à-vis rate and fees, may be necessary to secure the loan. In short, financial institutions must act in compliance and evaluate each credit properly and farily by a uniform standard. This work is intense and time-consuming, not to be down-played. Don’t forget – a bank is a bank, not a pawn shop.
With respect to alcohol, and many other commodities and activities consumed and or participated in by mankind, there are pros and cons, i.e., potential good and potential evil. There are times when the good and far-reaching benefits, both in the physical and metaphysical, are immense, and have a multi-faceted ripple effect. Conversely, there are times that, Chas v’Shalom, the potential evil is also far-reaching and borders on, and or crosses the border of downright dangerous, destructive and disastrous. To illustrate, and to begin to understand this concept, one need look no further than Adam and Eve, in transgressing the commandment which forbade them from eating from the Tree of Knowledge of Good and Evil. Many religious authorities have cited that, following that sin, good and evil became intertwined, making it tantamount to impossible to find a human being totally devoid of sin, and similarly, one devoid of all good. Hence, one can see very good individuals who, while striving for moral perfection, understand that that task is a constant struggle. On the other hand, one can understand that a small amount of good within an evil person can illustrate the phrase ‘Far more dangerous is an evil person with a little good than a fully evil one’, in that the good may disguise the evil, and entrap and harm mankind. In contrast to these extreme examples, there are many elements in the universe that can be used properly or improperly, for the manifestation of good or the manifestation of evil, and or their respective advancements.
With respect to alcohol, on the positive side, one can assert that it can be used as a part of proper religious service and celebrations, and for positive medicinal purposes, physically beneficial relaxation, and responsible enjoyment, which can enhance bonding between human beings at some level. On the other hand, alcohol can be habit-forming, destructive, and disastrous when used improperly. One should certainly not drink and drive, or lose control and facilitate sinful behavior, all the while psychologically hiding behind the excuse of feeling not fully responsible for their actions while intoxicated. It has been suggested that the personality of Esau, although possessing some outstanding good attributes, was susceptible to losing control due to extreme physical desires and violent and immoral inclination. However, one who falls into that trap may hit rock bottom and then thankfully realize that there is no actualization in being a slave to one’s own base desires. In the process of that realization, the hope is that repentance, improvement, and the focus of self-cleansing and embracing good will begin, and hopefully continue.
At this point, mankind would have a hard time avoiding the competition between good and evil without living in total isolation, and even then, this test is not absent. Thus, one can see, that, in the case of alcohol, if one is strong enough to commit to utilizing and enjoying this commodity for good to the best of one’s ability, that it parallels the tests that mankind faces in the continuing effort of separating out and embracing good, while rejecting evil. The use of alcohol can be just one microcosm of man’s dilemma since the sin that occurred in the Garden of Eden. Hence, as lending can be a facilitator to the expansion and proliferation of many industries, including alcohol, technology, and the gamut of industry, with their respective far-reaching influence on the environment and mankind, the general rule to be applied in the decision to extend a commercial loan, and or participate in or sanction a product (apart from the quantitative aspects of the science of lending and banking compliance), is it must always be viewed in conjunction with our holy responsibility to utilize and choose good. Thus, when drawing a conclusion, and posing the question of what lending would have to do with alcohol, following analysis it becomes apparent that it is not based in the denial of these two entities and their relationship, but in our collective responsibility to choose and proliferate good, reject evil, while maintaining our constant responsibility of proper conduct and self-discipline. In summation, if you enjoy, do so properly and responsibly, implementing holiness, and perhaps with the knowledge of King Solomon’s assertion, that (for the most part) there seems to be a time and place for most things.