Distillery Feasibility Study for USDA B&I, SBA and Bank Loans

A craft distillery carries a fire code question before a market question, and the market question has turned against it. MMCG Invest prepares distillery and tasting room feasibility studies for USDA Business and Industry, SBA 7(a), SBA 504 and conventional financing that confirm the adopted building code edition before accepting a construction budget, underwrite on tasting room and bottle-shop cash flow rather than on wholesale growth, carry the excise tier, the TTB permit timeline and the state's cocktail and shipping rules as the facts they are, and report the debt service coverage ratio (DSCR) by year against a sector in which closures exceeded openings for the first time.

The American Craft Spirits Association counted 2,131 active craft distillers in August 2026, down 6.6 percent from 2,282 a year earlier and from 3,069 in August 2024 on its definition; craft case volume fell 8 percent to 11.7 million cases in 2025 and sales value 3.7 percent to $7.3 billion, craft's share of U.S. spirits slipped to 4.2 percent by volume and 7.3 percent by value, and 2025 was the first year in which closures exceeded openings. California lost nearly half its craft distillers in a year on the same count. The broader category is soft: the Distilled Spirits Council reported 2025 supplier revenue down 2.2 percent with volume up only on ready-to-drink products, and Gallup puts adult drinking at a record-low 54 percent. A distillery file built on distribution growth runs against every published series. A file built on the tasting room, the cocktail bar and the bottle shop does not, because the on-premise margin is the one part of the business the distiller controls. The general method and the SOP 50 10 8.1 spine are on the restaurant feasibility study hub; the taproom and tasting room versions of the format are on the brewery feasibility study and winery feasibility study pages.

Distilled spirits above 20 percent alcohol are Class IC flammable liquids and above 55 percent Class IB. Under the International Building Code's 2018 edition and earlier, the maximum allowable quantity per control area is 120 gallons in closed use and 30 gallons in open use, doubled in a sprinklered building, so filling a single 53-gallon barrel in open use in an unsprinklered building triggers a Group H hazardous occupancy with its area and height limits, fire separations and often a separate building or detached rickhouse. The 2021 edition added items to Section 307.1.1 exempting distilling and barrel storage that conform to the fire code from Group H, and the 2024 edition moved them into its table: the quantity of alcoholic beverages in distilling or brewing is not limited, barrel and cask storage is not limited, and the F-1 factory threshold rose to above 20 percent alcohol. The trade is sprinklers: automatic sprinklers are required in F-1 fire areas manufacturing distilled spirits and in S-1 bulk storage. Some jurisdictions keep local amendments, Portland's building code guide still applies the quantity limits to open use, and NFPA 30 governs where a state adopts NFPA codes rather than the IFC. The study confirms the adopted edition and amendments in the subject jurisdiction before it accepts a construction budget, and budgets full sprinkler coverage on the 2021 or 2024 code or hazardous-occupancy construction and detached storage on an older one. That finding comes before site control.

A rural distillery is a USDA Business and Industry candidate. Nothing in 7 CFR Part 5001 excludes alcohol producers; the ineligibility tests reach gambling above 15 percent of revenue and any prurient income. A new business needs 20 percent balance sheet equity or 25 percent of total eligible project cost invested, and 25 percent either way if the guarantee is issued before construction is complete; a guaranteed loan above $1 million to a new business requires an independent feasibility study under 5001.306; the Agency may raise the equity requirement for higher-risk industries. Fiscal 2026 terms are an 85 percent guarantee under $5 million at a 3.0 percent initial fee and a 0.55 percent retention fee, with no fiscal 2027 notice published as of October 9, 2026. The program has financed distilleries: USDA Rural Development in Kentucky announced a $21.6 million B&I guaranteed loan through Magnolia Bank to Jackson Purchase Distillery in November 2023 and a $3,343,404 guaranteed loan for its second rickhouse in December 2024, both reported through local press from USDA announcements, and Bozeman Spirits received a $50,000 Value-Added Producer Grant in January 2022 to fund a feasibility study. VAPG planning grants are capped at $50,000 and working capital at $200,000 in fiscal 2026 for producers of agricultural products, which reaches a grain-to-glass distiller. The rules are on the USDA feasibility study page.

An urban distillery is an SBA borrower. A distillery that buys its building is a 504 project; distilleries, like breweries, are not on SBA's published list of special-purpose property examples, which names wineries, and the study requires the CDC's written classification before applying the 15 or 20 percent tier, noting that the appraiser may discount still-house improvements regardless. A tasting room and still in leased space is a 7(a) project at the 1.15 times floor with the still and cooperage as equipment on a useful-life maturity and the lease matching the loan term. No public charge-off rate exists for NAICS 312140, and the study says so rather than borrowing one. The programs are on the SBA 504 feasibility study and SBA 7(a) feasibility study pages.

Revenue is built by channel and the channels are set by statute. The tasting room and cocktail bar earn at retail; the bottle shop earns at retail less state markup; distribution earns at wholesale after the distributor's margin and, in control states, the state's. The Distilled Spirits Council counts 31 states plus the District of Columbia with permanent cocktails-to-go and 11 states that allow a distiller to ship direct to consumers; California's AB 1246 opened the largest market on January 1, 2026 as a one-year pilot with a 2.25-liter daily limit per consumer, a 150,000-gallon producer cap and a $25 permit, and sunsets after 2026, so the study treats California direct shipping as non-recurring. Kentucky allows direct shipping with third-party fulfillment; Nebraska licenses a direct shipper; Vermont allows only ready-to-drink products under 12 percent. The study models direct shipping as upside outside the eleven states and the cocktail program at the subject state's rule.

Demand is the trade area's resident and visitor base, the distillery-trail and lodging inventory, and conversion and average purchase measured against the tasting rooms already in the market. The ramp runs over three years or more with the on-premise lines carrying the early coverage, and aged spirits carry an inventory build the study funds explicitly: a whiskey program puts cash into barrels for two to four years before the first sale, and unaged spirits, ready-to-drink products and contract bottling are the bridge the pro forma must show.

Federal excise is $2.70 a proof gallon on the first 100,000 proof gallons, $13.34 to 22.23 million and $13.50 above, permanent since 2020; spirits bought in bulk and merely bottled do not qualify for the reduced rate without TTB-defined processing. TTB issued original Distilled Spirits Plant permits in a median of 49 days in June 2026, 48 in July and 47 in August against a 75-day service goal, far faster than the six months practitioners once cited, and the state license follows. State fees are modest: California's craft distiller at $1,037 a year plus a $1,135 application, Texas $3,000 per two years, Oregon $200, Washington $150, Virginia $490 to $4,060 by volume, New York's farm distiller $937.60 per three years, Florida $4,000 for a distiller and $1,000 for a craft distillery, Pennsylvania's limited distillery about $2,230 in the first year. State excise runs from $2.28 a gallon in Colorado to $14.61 in Michigan, a control state, and the study carries the subject state's rate and markup.

No published benchmark gives a dated craft distillery startup cost, and the study uses vendor quotes for the still, fermenters, grain handling, cooperage and the tasting room fit-out, with the fire code finding driving the building line. On a rural project at 25 percent equity the guaranteed loan carries a 3.0 percent initial fee on the guaranteed portion, and the study presents the stack at the equity level that avoids the pre-completion fee. Inventory in barrel is carried as working capital in the sources and uses, because the lender will ask how the distillery eats while the whiskey ages. The brewery page's wastewater line applies here as well: stillage and rinse water carry high BOD, and a surcharge and pretreatment contingency are carried.

The study reports DSCR as EBITDA over total debt service by year against the lender's covenant on a USDA loan, stated as a covenant and not a regulatory floor, and against 1.15 times on a 504 or standard 7(a) loan. Three cases are shown: a tasting-room-led base case, a distribution-heavy downside at wholesale realization, and an aged-spirits case with the barrel inventory build and its cash drag. Sales are tested at 10, 20 and 30 percent below base, grain and glass three points up, wages 10 percent up, rates 100 basis points up, and the sector's closure record is reported as context for the reserve.

A MMCG distillery study includes the fire code and occupancy finding for the adopted edition, the program eligibility and equity test, the trade area and visitor analysis, the competitive census of distilleries and tasting rooms, the channel projection under the subject state's cocktail and shipping rules, the barrel inventory and working capital schedule, the operating projection with excise, license and wastewater carried, the project cost with vendor quotes, the capital stack, the DSCR schedule on three cases with break-even and sensitivities, the collateral discussion on the still house and inventory, and a signed conclusion. Standard delivery is nine to sixteen business days; expedited delivery in five to seven is available. Fees begin at $4,900 for a single-site SBA 7(a) study and run $7,500 to $15,000 for USDA B&I and 504 studies. Revisions required by the lender or agency are made at no additional cost under MMCG's written acceptance guarantee. See MMCG's feasibility study methodology and where we work.

The distillery format follows the structure of the rural brewery and taproom case, USDA B&I, with the fire code finding, the excise tier and the barrel inventory schedule added. An operating distillery purchase follows the restaurant acquisition case under Appendix 15.