Bank wins relationship by financing a niche in the Minnesota brewery boom

When Dane Breimhorst was diagnosed with Celiac disease in 2007, it wasn't just the end of his days eating anything that contains gluten. It also appeared to be the end of a dream, held by Breimhorst and his friend Thom Foss, to open a brewery..But Breimhorst, a professional chef and connoisseur of craft beer, wasn't ready to give up so easily. He saw an opportunity. People who have Celiac disease and those who are gluten sensitive have something in common. "They stop drinking beer," Breimhorst said..Gluten-free beer is produced using grains like sorghum, millet, buckwheat and quinoa. Without the smooth malt and bitter hops of regular beer, beverages created with these ingredients often don't taste like beer. Brews created from sorghum, for example, can have a cider-like taste with a floral-almond sweetness in the finish, Breimhorst said. "Beer-lovers tend not to like these flavors," he said..So Breimhorst began a quest to create a gluten-free beer that tasted like beer. Using his chef's training, he approached the process as if beer where a fine dish. He used one flavor to counteract another, such as bitterness to counter sweetness. By 2011, after some 300 batches, he arrived at the winning combination. "It's a roundabout way of finding a formula for beer that doesn't taste gluten free," Breimhorst said. "It took three years of trying over and over again." .The brewery dream was alive again. What could have been a tragedy for Breimhorst's and Foss's business aspirations ended up giving them a niche in a booming market. Since 2012, the number of breweries in Minnesota has nearly doubled to 53. The partners would have entered the market with stiff competition..Now, because of their gluten-free formula, they had a captive customer base among those looking for gluten-free alternatives to beer. "You have to go without a lot as a person with Celiac," Foss said. "We don't even have to push our gluten freeness that hard. People who have Celiac are denied so much, they are fantastic researchers. They find us.".Both Breimhorst and Foss had careers in the corporate arena before embarking to open a brewery. Breimhorst negotiated debt obligations between large banks, and Foss worked in operations for a multinational insurance company. The pair, friends since they were 19, were fire eaters at festivals before getting corporate jobs. So Burning Brothers Brewery received its name. "The question became: How are we going to finance it all?" Foss said..Foss was willing to fund some of their venture with his 401(k) money. His wife also offered an inheritance from her grandfather for a promissory note. For most of the project, however, the partners needed a loan to build a production facility. After approaching a few banks, the duo found a lender at a local bank who was interested. Then, in mid-2012, the lender left the bank and the deal fell apart. "After that, we stumbled around looking for banks that were interested in financing us. We actually avoided ever talking to the larger banks," Foss said..Then a friend suggested Mankato, Minn.-based Pioneer Bank. "He introduced us to Matt Chmielewski at Pioneer," Foss said. "They were the only bank to offer us a U.S. Small Business Administration loan. Other banks had just hemmed and hawed about it.".Pioneer offered the partners financing through a program called SBA Express. The bank approved them for the full $350,000 allowed by the SBA. The loan receives a 50 percent guarantee from SBA and uses the borrower's collateral to cover the remaining exposure. Pioneer Bank is 87 miles away from Burning Brothers Brewery in St. Paul, Minn. .After Breimhorst and Foss closed the loan in May 2013, the partners leased and renovated a facility. They also purchased $120,000 in brewing equipment including three, 15-barrel fermenters. In December 2013, they finished their first full batch of beer. In January, they sold their first can of beer..Now, they're expanding. Burning Brothers hired an additional person to run their tap room, which opened in April. The pair projected sales of $500 a night. "We made $5,000 the first night," Foss said. "We made $1,800 on the slowest night we've had.".The brewery was distributing through two sellers in the Twin Cities area in April. As of May, they have sellers in Rochester, Duluth and Faribault, Minn., as well. Now, to meet the rising demand, the company is borrowing from Pioneer Bank to install two additional fermenters. "We want to saturate the Minnesota market," Foss said. "After that, my radar is pointing to Chicago for our next expansion.".Foss said he's not the personality type to stop and smell the roses when he reaches a goal. "At least we have a business where we must at least stop and taste the beer," he said..CUSTOMER Checklist:.Dane Breimhorst & Thom FossBurning Brothers BrewerySt. Paul, Minn..I want to know my banker's name off the top of my head. I want a relationship; I do not want to be an account number.Use your expertise to show me how to improve my numbers or how I can better document my information.SBA programs offer guarantees for a large portion of our loan. That type of lending was valuable both for us and our bank. I do not understand other banks' uncertainty over SBA loans.