A liquor license can be a valuable asset; however, whether the license can be used as collateral to secure a business loan differs among states. The market value of a liquor license can vary according to geographic location of the business. In areas where the number of licenses may be limited, the market value of a license is likely to be much higher. Lenders providing financing to a business involved in the distribution or retail sale of liquor may be willing to include the liquor license as part of the collateral pledged to secure bank financing. Still, a borrower needs to research several factors beforehand.
Find out if the state in which your business is located considers a liquor license to be intangible property and whether lenders are willing to extend credit based on the value of the liquor license. In some states, a retailer may use a liquor license to secure a loan under certain conditions, provided that the loan has been approved. Other states consider a liquor license to be a privilege and not a property right and therefore do not allow liquor licenses to be used as collateral.
Inquire about obtaining a loan to purchase a liquor license if you don’t already have one. Depending on the state and municipality as well as the type of establishment, the fees for a liquor license can vary. Licenses must also be renewed annually. You may be able to put up the liquor license itself as collateral for a loan to purchase the license. Naturally, the lender will want to know how much the liquor license is worth.
Contact a lender to discuss your needs and find out what the specific requirements are in your state. If state law defines a liquor license as an intangible asset, you may be able to use it as security to finance a loan.
Collect all the required documentation before applying for financing. Be sure to provide a copy of a current state or county liquor license. The lender will assess the value of the liquor license as an asset and advise you if the license can be pledged as collateral to obtain a loan. Be prepared to present bank statements, sales tax returns, income tax returns, general ledger reports and other financial statements. The lender may be more interested in the cash flow generated than in the collateral. If you can prove that business is strong and that there is the potential for increased profitability, you may qualify for financing regardless of the value of the liquor license.
Be sure your lender includes the liquor license in the description of collateral being used to secure financing. Generally, the lender will request a copy of the license as verification that the borrower is actually the owner of the license. Even though some lenders will use a liquor license as collateral for financing, a primary issue of concern may be whether the liquor license will be renewed. The owner of the liquor license is expected to honor all obligations as required by law. Renewal applications must be filed with the local licensing authority when renewal comes due.