Top 5 Questions Lenders Ask CPG Brands Before Granting a Loan
Securing a loan for your consumer packaged goods (CPG) brand can feel like navigating a labyrinth. Having spent years in the trenches with emerging CPG brands, I understand the challenges you face. Lenders have specific concerns and questions that can catch you off guard if you're not prepared. I've sat across the table from countless entrepreneurs who, despite having incredible products, stumbled during the funding process because they didn't anticipate what lenders care about most.
In this article, I'll share the top five questions lenders typically ask CPG brands before granting a loan. Understanding these questions and preparing thoughtful, data-driven responses will increase your chances of securing funding and provide deeper insights into your business' financial health and growth potential.
1. What's Your Current Cash Flow Situation?
One of the most important things lenders scrutinize is your cash flow. They want to know if your business generates enough cash to service the debt. Brands with skyrocketing sales but poor cash flow often struggle to secure loans because, in the eyes of lenders, cash flow is king.
Lenders assess your cash flow to determine your ability to make regular loan payments without jeopardizing your operations. They're looking for a debt service coverage ratio (DSCR) of at least 1.5x to 3x your debt obligations, which assures them that you have a cushion to handle unexpected expenses, downturns, or market shifts.
To present your cash flow:
Use accrual basis financial statements.
Prepare a statement of cash flows.
Demonstrate cash reserves.
Highlight cash management strategies.
Showcase contingency plans.
For brands in a cash burn phase, the best time to secure a loan is immediately after closing an equity funding round. Lenders are more inclined to extend credit when they see fresh capital injected into your business.
Consider a beverage start-up that‘s just closed a $2 million Series A funding round. They’ve been burning cash to scale production, expand their marketing efforts, and build out their sales team. By presenting their updated financials, including a robust cash flow statement and a clear plan to reach profitability, they could secure a $500,000 line of credit. Additional capital would provide a safety net, enabling them to manage inventory, labor costs, production spikes, and unexpected expenses without cash flow constraints.
2. How Is Your Inventory Managed and Valued?
Inventory management is a critical area of concern for lenders in the CPG industry, where inventory often represents a significant portion of assets. Lenders want to understand the value of your inventory, how quickly you can convert it into cash, and how effectively you manage it. They care about:
The value of your finished goods inventory during the loan term.
If you have products with longer shelf lives than the loan term to minimize the risk of obsolescence, spoilage, or write-offs
High turnover rates, which indicate efficient inventory management, strong demand for your products, and effective sales strategies, which boost lender confidence
Robust systems that demonstrate control over inventory levels, reducing the risk of overstocking, stockouts, or mismanagement
The method you use to value inventory affects your financial statements and can impact lender perceptions of your profitability and asset value
Let’s look at some valuation methods:
First-in, first-out (FIFO): Making sure the oldest inventory items are sold first. This method can result in lower cost of goods sold (COGS) in times of rising prices, increasing gross profit.
Last-In, first-out (LIFO): Selling the newest inventory first. LIFO can reduce taxable income in times of rising prices but may not reflect the actual flow of goods.
Weighted average cost: Averages the cost of all similar items in inventory, smoothing out price fluctuations.
Specific identification method: Tracks the actual cost of each specific item, useful for unique or high-value products.
Retail inventory method: Estimates COGS and ending inventory based on retail prices and cost-to-retail percentage, often used in retail environments.
To alleviate lender concerns:
Use software that provides real-time inventory levels, expiration dates, batch tracking, and turnover rates.
Products with varying shelf lives, price points, and demand cycles can balance inventory risks.
Adequate safety stock prevents stockouts without overextending cash tied up in inventory.
Use data analytics to predict sales trends, reducing the risk of overproduction or understocking.
Reliable suppliers can help ensure timely replenishment and reduce supply chain disruptions.
3. Can You Provide Detailed Financial Projections?
Lenders aren’t just interested in your current financial state; they want to see where your business is headed. Providing detailed financial projections including the following shows that you have a strategic plan for growth and a realistic understanding of your market.
Revenue forecasts: Demonstrate expected sales growth based on market analysis, historical data, expansion plans, and marketing initiatives.
Expense projections: Outline anticipated operating expenses, cost of goods sold, capital expenditures, and variable costs.
Profit margins: Show expected gross, operating, and net profit margins, indicating profitability trends and efficiency improvements.
Cash flow projections: Forecast cash inflows and outflows to illustrate liquidity over time, including peak and low periods.
Capital needs: Identify future funding requirements for expansion, product development, or infrastructure investments.
To provide reliable projections:
Integrate your income statement, balance sheet, and statement of cash flows.
Use conservative estimates grounded in market research, historical performance, industry benchmarks, and economic indicators.
If your sales fluctuate due to seasonality, reflect this in your projections to show awareness and preparedness.
Demonstrate how changes in key assumptions, like sales growth or cost of goods sold, impact your financial projections.
Keep your projections current to reflect recent developments, market changes, and performance metrics.
Additionally, lenders want assurance that your business model is scalable. Highlight:
Economies of scale
Market expansion plans
Operational efficiency improvements
Talent acquisition
Innovation and product development
4. What Are Your Gross and Contribution Margins?
Understanding and articulating your margins is vital. Lenders assess margins to evaluate profitability and the sustainability of your business model.
Gross Margin vs. Contribution Margin
Gross margin: Calculated as (Revenue - COGS) / Revenue. It measures how much you earn from each dollar of sales after covering the direct costs of producing your goods.
Contribution margin: Calculated as (Revenue - Variable Costs) / Revenue. It indicates how sales contribute to covering fixed costs and generating profit.
In the CPG industry, where fixed costs can be high, contribution margin provides insight into the profitability of individual products or units. To improve and present your margins:
Analyze product mix. Identify high-margin products and focus on increasing their sales through targeted marketing and promotions.
Optimize COGS. Negotiate better terms with suppliers, find cost-effective alternatives without compromising quality, or improve manufacturing efficiency.
Adjust pricing. Consider price adjustments based on market positioning, customer willingness to pay, and competitor pricing.
Streamline operations. Implement lean practices to reduce waste, increase efficiency, and lower variable costs.
Reduce overhead costs. Evaluate fixed costs such as rent, utilities, and administrative expenses, and seek opportunities for savings that improve overall profitability.
When communicating margin metrics:
Break down margins by product line, channel, region, or customer segment.
Show how margins have improved over time due to strategic initiatives, cost reductions, or pricing strategies.
If margins have fluctuated, provide explanations and steps taken to address issues, demonstrating proactive management.
Incorporate charts, graphs, and dashboards to make margin data more accessible and compelling.
Compare your margins to industry averages to demonstrate competitiveness and identify areas for improvement.
5. Do You Have a Plan for Scaling Distribution?
Lenders are keenly interested in how you plan to scale your distribution to support sales growth. A robust distribution strategy indicates that you're prepared to meet demand, expand your market presence, and handle operational complexities. They’ll look at:
If your distribution capabilities align with your sales forecasts to make sure projected revenues are attainable
Expanding distribution channels increases market penetration, customer base, and revenue potential
How distribution impacts your ability to deliver products timely, affecting customer satisfaction, brand reputation, and repeat business
Whether you have a diversified distribution network that reduces dependency on single channels and mitigates risks associated with market fluctuations
Preparing for Your Next Loan Application
Securing a loan is more than just a financial transaction; it's a critical step in scaling your CPG brand. Anticipating the questions lenders will ask and preparing thorough, data-backed responses positions your brand as a viable and attractive investment. Plus, it strengthens your business by highlighting areas for improvement and strategic focus.
If you're preparing for a loan application or simply want to strengthen your financial foundation, we're here to help.
Contact us today at Balanced Business Group to schedule a consultation.
For more insights, explore our Finance services and Accounting services, and read our articles on Trade Spend Analysis: Optimizing Your P&L for Better Financial Health and The Strategic Role of Financial Modeling in Scaling a CPG Brand.
Author: Pedro Noyola
Pedro Noyola is the CEO of Balanced Business Group (BBG), a company dedicated to helping Founders in the CPG food and beverage industry gain financial confidence. At BBG, Pedro combines traditional accounting with tailored financial guidance, providing industry-specific insights to ensure sustainable growth for passionate food entrepreneurs. He is also an angel investor and a mentor to emerging CPG brands via SKU and TIG Collective. Pedro’s career spans leadership roles at FluentStream, where he helped the company achieve recognition as one of the Fastest Growing Companies in America by Inc., and Telogis, where he was part of a team that grew the company’s recurring revenue from $50 million to $1.2 billion in under five years.
Pedro holds a BA and MPA from The University of Texas at Austin and an MBA from Harvard Business School. He is an active member of the Young Presidents Organization, continually seeking growth in both leadership and learning. Outside of work, Pedro enjoys family time and outdoor activities, drawing personal fulfillment from his roles as a husband and father.Running a winery is as much about mastering the art of winemaking as it is about managing the business behind the scenes. But when it comes to sourcing barrels from Bordeaux or importing specialty glassware from Tuscany, cross-border payments often become an unexpected headache.
Between high foreign exchange (FX) fees, currency fluctuations, transaction delays, and compliance hurdles, the financial complexity can feel overwhelming. These challenges don't just impact your margins—they take time away from what truly matters: crafting exceptional wine.
Common Challenges with Cross-Border Payments for Wineries
When I first started working with wineries, I noticed a recurring theme — international payments were a significant pain point. Unlike other businesses, wineries often make large annual purchases from international suppliers, such as European cooperages or specialty glass manufacturers. This sporadic frequency doesn't justify:
High FX fees: One of the most pressing issues is the exorbitant foreign exchange fees charged by conventional banks. For example, if you're purchasing barrels from a French cooperage once a year, a bank's FX fees can eat into your margins significantly. I've seen wineries overpay by thousands of dollars simply because they weren't aware of more cost-effective options or failed to negotiate better rates.
FX exposure: Currency fluctuations can dramatically affect the final cost of your international purchases. Without proper hedging strategies or real-time monitoring, a slight dip in the dollar's value against the euro can inflate your expenses overnight. High levels of uncertainty makes budgeting more challenging and force you to build contingency funds that could be better used elsewhere.
Transaction delays: Timing is everything in the wine industry. Delays in payments can result in shipment holdups, affecting your production schedule and customer delivery timelines. I recall a client who missed the optimal bottling window because their payment was stuck in international banking limbo, delaying a shipment of corks, barrels, and custom packaging materials.
Compliance concerns: Navigating the labyrinth of international banking regulations can be overwhelming. Each country has its own compliance requirements, and any misstep can lead to penalties, strained supplier relationships, or canceled shipments.
Key Features to Look for in Cross-Border Payment Solutions
Selecting the best cross-border payment solution for a winery is like choosing the perfect yeast strain for fermentation — it requires careful consideration.
Opt for platforms that provide real-time exchange rates with minimal markups and volume-based discounts for high-value transactions. For instance, if you're buying €50,000 worth of barrels or equipment, even a 1% difference in exchange rates can save or cost you an additional $500.
Hidden fees are the enemy of accurate budgeting. Choose providers that disclose all charges upfront. Transparency ensures you won't be blindsided by unexpected costs or additional surcharges that can adversely impact your financial planning.
Look for solutions that guarantee quick transaction times, automated tracking, and 24/7 support. When you're coordinating shipments of Italian bottling equipment or Spanish corks, delays can disrupt your entire production timeline.
Top Cross-Border Payment Solutions for Wineries
Having navigated the vast ocean of cross-border payment platforms, I've identified several that align well with the needs of wineries. Here's a look of some of the best options:
Wise (formerly TransferWise)
Wise is renowned for its transparent fee structure and real-time exchange rate close to the mid-market rate. It's particularly beneficial for small to medium-sized transactions.
Competitive FX rates: Offers rates that are significantly better than traditional banks.
Transparent fees: All fees are disclosed upfront before you confirm the transaction.
User-friendly interface: Easy to set up and navigate, even if you're not tech-savvy.
Global reach: Available in multiple currencies and regions, making it ideal for wineries with diverse suppliers.
Limitations: May have lower maximum transaction limits than other options, which could be a drawback for making large purchases.
OFX
OFX specializes in large international money transfers and provides dedicated support.
No transfer fees: OFX doesn't charge transfer fees for transactions over a certain amount.
Competitive exchange rates: Offers better rates for larger sums, ideal for big purchases such as French oak barrels.
24/7 customer support: Access to currency experts who can provide personalized assistance.
Personalized risk tools: Allows you to hedge against currency risk effectively.
Considerations: The registration process is more involved, requiring identity verification, compliance checks, and additional documentation.
Bill.com
Bill.com is a comprehensive payment platform that integrates seamlessly with accounting software.
Automated workflows: Streamlines accounts payable and receivable processes, reducing manual intervention and minimizing errors.
Integration capabilities: Syncs with QuickBooks, Xero, SAP, and other accounting systems, ensuring seamless data flow.
Audit trails: Provides detailed records for compliance, financial analysis, and external audits.
Enhanced security: Offers multifactor authentication and role-based permissions to protect sensitive financial data.
Subscription-based: Requires a monthly fee, which may be more suitable for wineries that make frequent transactions or those managing multiple suppliers.
Airwallex
Airwallex is a fintech company providing borderless business accounts.
Multi-currency accounts: Hold and manage funds in multiple currencies, reducing the need for frequent conversions.
Competitive FX rates: Offers low-cost currency conversions, with the ability to lock in rates for future transactions.
API integration: Suitable for tech-forward wineries looking to automate payments, integrate platforms, and streamline workflows.
Bulk payment support: Facilitates mass payments to multiple international suppliers, saving time and reducing administrative costs.
Availability: Services are expanding but may not be available in all regions, especially remote winery locations.
Evaluating FX and Fee Structures in Payment Solutions
When it comes to FX transfers for wineries, payment solution costs can vary. Every dollar matters, especially when you’re sourcing barrels from Bordeaux or importing equipment from Tuscany. The trick is knowing how to read between the lines on FX and fee structures.
Start by comparing the provider’s rate to the interbank rate, which is the rate banks use to trade currency and your baseline for fairness. Anything above it is a markup, and the bigger the gap, the more you're paying to pad someone else's pocket instead of investing in your winery. Providers such as Wise or Airwallex typically stick closer to the interbank rate, which means more savings for you.
Also, be sure to consider FX spreads — the difference between the rate providers sell you currency for versus what they’ll buy it back for. Wineries that make large, sporadic purchases can benefit from fixed-rate contracts, locking in a good rate for future buys.
Lastly, think about transparency. Providers that shout “zero fees” but hide costs by inflating exchange rates aren’t helping your bottom line. Tools that clearly break down every fee (think OFX or Bill.com) are your best bet to protect your finances.
Integrating Payment Solutions With Winery Operations
Integration is a practical step toward operational efficiency. Consider:
Accounting software integration: Make sure the payment platform syncs with your existing accounting system. Real-time data flow improves reconciliation accuracy and provides up-to-date financial insights. For example, integrating Bill.com with QuickBooks means that when you pay your Italian bottle supplier, the transaction automatically updates in your financial records.
Inventory management: Linking payments to your inventory system can help you track the cost of goods sold, inventory levels, and supplier reliability.
Mobile accessibility: Platforms with mobile apps allow you to monitor transactions and analyze cash flow on the go, a feature I've found invaluable during busy harvest seasons or trade shows.
User permissions and controls: If you have a team handling finances, look for solutions that offer customizable user roles, multilevel approvals, and transaction limits to maintain financial control and security.
Multi-supplier insights: Some platforms provide analytics that highlight supplier performance, allowing you to negotiate better terms based on spending history and reliability.
Finding the Right Payment Solution for Your Winery
Every drop of effort you invest should be poured into elevating your craft, not getting tangled in financial complexities. However, cross-border payments are a necessary part of sourcing the finest barrels, suppliers, equipment, and ingredients to make your wines exceptional.
Selecting the right payment solution is a key step toward simplifying your international transactions. Prioritize platforms that offer transparent fees so you're never caught off guard by hidden costs.
Keep in mind, real-time FX rates help you make transactions at the most advantageous times, protecting your margins against unpredictable currency swings. And let's not forget integration capabilities. Seamless syncing with your accounting and inventory systems can save you countless hours and reduce errors, letting you focus more on your vineyards and less on your spreadsheets.
For more insights and resources on managing your winery's finances, explore our finance services, accounting services, and read our Ultimate Guide to Winery Accounting.
If you're ready to transform the way you handle international payments for wineries and fortify your financial future, I'm here to help. Reach out today to schedule a consultation so we can craft a customized financial plan for your business.
Author Name: Pedro Noyola
Author Bio: Pedro Noyola is the CEO of Balanced Business Group (BBG), a company dedicated to helping Founders in the CPG food and beverage industry gain financial confidence. At BBG, Pedro combines traditional accounting with tailored financial guidance, providing industry-specific insights to ensure sustainable growth for passionate food entrepreneurs. He is also an angel investor and a mentor to emerging CPG brands via SKU and TIG Collective. Pedro’s career spans leadership roles at FluentStream, where he helped the company achieve recognition as one of the Fastest Growing Companies in America by Inc., and Telogis, where he was part of a team that grew the company’s recurring revenue from $50 million to $1.2 billion in under five years.
Pedro holds a BA and MPA from The University of Texas at Austin and an MBA from Harvard Business School. He is an active member of the Young Presidents Organization, continually seeking growth in both leadership and learning. Outside of work, Pedro enjoys family time and outdoor activities, drawing personal fulfillment from his roles as a husband and father.
