Craft Bourbon Distillery and Visitor Experience in Nelson County, Kentucky: An SBA 504 Model Study

Model study: an illustrative feasibility analysis built on public data for Nelson County, Kentucky; not a client engagement.

Project summary

All figures in this table are model results or assumptions, not market facts.

The credit question

A bourbon distillery is two businesses on different clocks. The visitor business earns cash in its first week. The whiskey business spends cash for years, because bourbon must age before it can be sold as the product the brand depends on. The loan is repaid from the first business while the second fills its warehouse. A lender reviewing a file like this must be convinced of five things.

First, that visitors will arrive in the assumed numbers by the second year. Kentucky Bourbon Trail destinations hosted 2.7 million visitors in 2025, holding steady with the prior year's record, across nearly 70 destinations [3], an average of about 38,571 each. The model assumes 32,000 visitors in Year 2 and 42,000 from Year 4. SBA's 504 procedures for projection-based projects look for repayment by Year 2 [2], so the second year decides the loan.

Second, that the sponsor can carry the aging period. A 504 Project is the purchase or improvement of long-term fixed assets [1], so barrels cannot be financed with 504 proceeds. Here the sponsor's cash outside the 504 project ($3,924,436) is almost twice the 20% contribution inside it ($2,089,147).

Third, that the bridge products are priced for a soft bulk whiskey market. Published figures on Kentucky's barrel inventory and production cutbacks come from industry and press sources that relay other bodies' data, so this model study does not cite them. It treats contract-distilling, aged bulk and surplus barrel prices as assumptions and tests a deeper glut in scenario S2. Cheap sourced whiskey lowers the cost of the bridge, but it also lowers what the distillery's own wholesale cases and surplus barrels will fetch.

Fourth, that taxes are modelled correctly. Federal excise is $13.50 per proof gallon, with a reduced $2.70 rate on a distilled spirits operation's first 100,000 proof gallons [4]. Kentucky adds a $1.92-per-gallon excise [5], an 11% wholesale sales tax on distillery retail sales [6] and a property tax on aging barrels whose taxable share began falling with the January 1, 2026 assessment [7].

Fifth, that the collateral holds value. A still house and rickhouse have few other uses. SBA requires a larger contribution when a project involves the construction of a limited or single purpose building or structure [1]. SBA's list of limited or special purpose properties names wineries but not distilleries, and the list is not all-inclusive [2]. This model study treats the distillery as limited purpose: a 20% contribution for a new business [1], with the bank funding at least half of cost [1].

At stabilization, the project covers debt service more than 2.5 times. In Year 2 it covers 0.40 times. The credit decision turns on that gap.

Location and county economy

Population. Nelson County added 2,304 residents between April 2020 and July 2025, growth of 4.93%, more than twice the state rate [8]. In 2025, domestic migration added 229 and international migration 155, against a natural increase of 39 [8]. Growth matters here as a labor pool, not a customer base: about 80% of Bourbon Trail visitors come from outside Kentucky [3].

Income. Median household income was $75,726 in the 2024 SAIPE estimate, about 17% above the state's $64,481, and 11.7% of residents were in poverty against 15.4% statewide [9]. For the loan, income matters through wages: hospitality staff must be hired in a county where manufacturing pays well.

Employment and major sectors. County Business Patterns for 2023 counts 17,214 private employees [10]. Manufacturing employs 37.2% of them, and distilleries alone (NAICS 312140) employ 2,569 in 12 establishments, 14.9% of private employment, with average pay of about $76,500 against $53,800 for all private employers [10]. Traveler accommodation employs only 68 people in 10 establishments [10]. The 2023 file is the latest county release on the Census Bureau's site [11].

Source: [10]; shares computed.

Three points follow. Contractors, suppliers and regulators know how to build a distillery here. Distillery labor exists but costs about $76,500 a year. And with little local lodging, many visitors arrive as day-trippers, so the experience must capture spending in one visit.

Access and labor. Visitors arrive by road, so access from the main routes into Bardstown matters more than scenery. The model's 20 to 25 hires, most of them in hospitality, compete for staff with distillery employers paying well above the private average [10].

Market analysis

Demand drivers

The Kentucky Department of Tourism's 2025 county and regional table puts statewide visitor spending at $10,383.04 million, up 2.6%, and Nelson County's at $66.59 million, up 6.3% [12]. Nelson sits in the Louisville-Lincoln region, which Jefferson County dominates with $3,136.12 million of the region's $3,857.50 million [12]. The department's statewide 2025 report is still marked as a draft, so this model study uses only the county table. The Kentucky Distillers' Association reports that Trail guests stay three to five days and that groups spend $600 to $1,400 per trip, from visitation self-reported by member distilleries [3].

Demand is strong but flat. The Trail held its record rather than growing, and 11 of its nearly 70 destinations were new in 2025 [3]. A new distillery takes share; it does not create visits.

Industry conditions

What matters for this model is the direction of bulk whiskey prices, not a headline inventory count. The bridge depends on buying contract distillate at an assumed $850 to $875 per barrel and aged bulk bourbon at an assumed $2,400, and surplus barrels are assumed to sell at $1,800. A soft market helps the first two and hurts the third. Scenario S2 halves the bulk price and cuts wholesale volume 40%, and the model still passes at stabilization.

Existing supply

County Business Patterns counts 12 distillery establishments in Nelson County [10]. The Kentucky Distillers' Association reports Trail visitation as a total [3], not by destination, so the model uses averages rather than a named competitive set. A lender should require a survey of nearby distilleries' tours, prices, capacity and visit counts.

Demand method: fair share and capture

Fair share. Stabilized visitation of 42,000 is 9% above the Trail average of about 38,571 and equal to 1.56% of Trail visits, against an equal share of about 1.43%. The premium rests on a Bardstown-area location in a county whose visitor spending grew 6.3% [12]. Year 2's 32,000 is 17% below the average, reflecting the time a new brand needs to earn listings and reviews.

Capture of county spending. On-site revenue per visitor is about $78 in Year 1 dollars at the stabilized product mix: $28 of tours (80% paying $35), $8 at the bar, $9 of merchandise and $33 of bottles. At 42,000 visitors, that is about $3.27 million, or 4.9% of Nelson County's 2025 visitor spending [12]. The categories do not match exactly, but one attraction taking about 5% of a distillery-centered county's visitor spending is ambitious, not implausible.

Ramp. Visitors rise from 22,000 in Year 1 to 32,000, 38,000 and 42,000. No public data show how fast new Kentucky distilleries ramp, so this is the model's most important unsourced assumption.

Products and forecast

The distillery sells sourced bourbon (bought aged and bottled under its label), white spirits, young straight bourbon, four-year bourbon, private barrels and surplus bulk barrels. Straight bourbon must be stored in charred new oak barrels at 125 proof or less for at least two years [13], so the 900 contract barrels filled 24 and 12 months before opening supply young bourbon from Year 1 and four-year bourbon from Year 3. House distillate reaches four years in Year 5. Kentucky lets a distiller holding a Class B license, but not a Class A license, sell and deliver to retailers up to 5,000 gallons a year of its own brands, including spirits produced for it under contract [14], and sell packages to visitors up to nine liters per purchaser per day [14]. Wholesale starts at 1,700 cases in Year 1 and reaches 5,400 by Year 10; the gift shop, which keeps the retail margin, carries the business.

Site and technical

Site. The model assumes 25 acres in unincorporated Nelson County within the Nelson County School District, at an assumed $20,000 per acre. The site needs truck access for grain and barrels, visitor parking, public water, three-phase power, wastewater capacity or pretreatment, stillage loading, fire separation for the rickhouse and room for a second rickhouse.

Permits. The project needs local zoning and fire approvals, a federal distilled spirits plant registration and a Kentucky distiller's license. KRS 243.0305 lets a licensed distiller in wet territory, or in a precinct that has authorized limited sales at distilleries, run a gift shop [14], offer samples and hold an NQ2 retail drink license [14]. Samples are capped at one and three-fourths ounces per visitor per day and may not be charged for [14], so paid tastings run under the drink license. Souvenir packages not made available to wholesalers are capped at three liters per person per day [14]. The precinct's wet or dry status is a threshold item for any site.

Construction. One building combines still house, bottling hall and visitor wing, at an assumed $350 per square foot. Process equipment is assumed at $1,600,000 and bottling and barrel handling at $350,000. The rickhouse, at $325 per position, is sized to the model's peak stock of about 2,285 barrels. A guaranteed maximum price contract is assumed.

Schedule. Authorization and closing are assumed in the first half of 2027, then 16 months of construction, with opening late in 2028. Contract distilling starts about 24 months before opening, so the sponsor commits to it before the loan closes. The coverage test runs from completion.

Development budget and sources and uses

Development budget

Every cost is an assumption to be replaced with contractor pricing, equipment quotes and an appraisal. The structure follows the regulation: Project Property is long-term fixed assets such as land, buildings, machinery and equipment [1], and eligible costs include essential professional fees, a contingency reserve of up to 10% of construction cost and repayment of interim financing, including points, fees and interest [1].

All lines are model assumptions or results. Interim interest assumes the bank's interim loan funds 80% of cost, drawn evenly over 16 months at 8.00% (Prime of 7.00% [15] plus one point, an assumption), iterated because interest is part of the cost it finances.

Sources and uses

The 504 project is the fixed assets. Everything the aging problem creates (bridge inventory, pre-opening costs, deficits while house whiskey ages and a cash reserve) sits outside it and is funded by the sponsor.

All rows are model results.

The sponsor's equity totals $6,013,583, or 41.6% of total capitalization, but only $2,089,147 counts as the 504 contribution. A file showing only the 504 sources and uses would present a 20% equity project and omit the $3.9 million the sponsor must also hold. The outside equity is computed, not estimated: bridge inventory ($776,250), pre-opening costs ($450,000), the peak cumulative shortfall after debt service through Year 3 ($2,329,718) and six months of debt service in reserve ($368,468).

Debenture build

Model results on the fee rules below.

The regulation sets SBA's guarantee fee at 0.5% of the debenture, an annual fee of no more than 0.9375% of the balance, a funding fee of no more than 0.25% and a CDC processing fee of up to 1.5% of net proceeds [1]; CDC closing costs financed in the debenture are capped at $10,000 [1]. The SOP sets the fee for selling 20- and 25-year debentures at 0.4% of the gross debenture and refers borrowers to SBA notices for fee updates by fiscal year [2]. The FY 2027 notice was not reviewed, so the model charges the full upfront fee and includes the annual fee in the 7.00% effective rate. Any fee relief would be upside.

Revenue build and operating expenses

Revenue assumptions

Prices are Year 1 dollars, escalated 3% a year on site and 1.5% at wholesale, where a soft bulk market limits increases.

All rows are model results.

Revenue grows from $2.03 million in Year 1 to $5.77 million in Year 5 and $6.77 million in Year 10. On-site revenue is 83% of the total in Year 1 and 67% in Year 10, as four-year house bourbon opens wholesale and private barrel sales. Year 5's bulk sales ($461,651) include the first surplus contract barrels and are partly non-recurring.

Alcohol and barrel taxes

Federal law allows the reduced rates only on spirits distilled or processed by the operation, and bottling alone does not count as processing [4]; within a controlled group, the reduced-rate quantity is shared among members [4]. Whether proofing sourced bourbon qualifies needs counsel, so the model charges it the full rate. Kentucky's wholesale sales tax applies to distillers' retail, souvenir and drink sales under KRS 243.0305, and where no wholesale price is readily available a distillery computes the wholesale price as 70% of the retail price [6]. The model applies 11% to retail receipts, which overstates the tax if the 70% base applies. KRS 243.0305 requires distillers selling under its retail and drink provisions to pay the tax [14].

The barrel tax combines the state's 5 cents per $100 with the 2025 local rates for unincorporated Nelson County in the Nelson County School District: 18.0 cents county-wide and 67.0 cents school [16]. Kentucky law now reduces the share of a barrel's assessed value that is subject to tax and exempts barrels from January 1, 2043 [7], a phase-down enacted in 2023 [17].

Source: KRS 132.140 [7]; intervening years step down between these points.

The 2023 act also imposes, from 2026, a replacement tax on warehouse owners in school and fire districts that collected barrel tax in 2025, sized to restore those districts' revenue and assessed in proportion to barrels stored [17]. Because a Nelson County warehouse would share in it, the model credits no phase-out savings. With assessed value assumed at $600 per new barrel plus $150 per year of age, the tax is about $15,500 a year at a full warehouse, or about $6.80 a barrel. The act's elective credit for barrel tax paid on up to 25,000 barrels, tied to capital improvements at the distillery, is nonrefundable [17] and is not modelled; whether a taxpayer formed after the election window opened can use it is a question for tax counsel.

Operating expenses

All rows are model results.

Costs are mostly fixed. Hospitality payroll is $380,000 plus $7.50 per visitor, and management payroll $420,000, both escalating 3.5%. Marketing is $150,000 plus 3% of revenue. Repairs rise from 0.75% to 1.75% of hard cost. Property tax applies the 2025 Nelson County rates: 96.12 cents per $100 on real estate, 130.0 cents on business furniture and fixtures, and the state-only 15 cents on manufacturers' machinery [16]. Production labor and materials sit inside the $950 fill cost per barrel, capitalized into inventory until the bourbon is sold. Stabilized EBITDA margin is 33.2%, which depends on the gift shop keeping the retail markup the three-tier system otherwise shares.

Barrel inventory

All rows are model results.

In Years 1 to 4 the distillery spends $1.94 million filling barrels it cannot yet sell as four-year bourbon, and none of it appears in EBITDA. That is the cash cost of aging.

Ten-year pro forma

All rows are model results.

EBITDA is -$235,042 in Year 1 and $296,007 in Year 2, then turns strongly positive from Year 3, when four-year contract bourbon reaches the shop and wholesale. After barrel fills and debt service, cash flow is negative for three years and about $1.0 million to $1.3 million a year from Year 5. The inventory line is the gap between EBITDA and cash: in Year 1 the distillery spends $427,500 on fills but releases only $52,828 of barrel cost into cost of goods. A lender reading only EBITDA in Years 1 to 4 overstates cash available for debt service by $300,000 to $400,000 a year.

Debt structure under the 504 program

All rows are model results on assumed rates.

Rule set and rates. SOP 50 10 8.1 applies to 504 applications issued an SBA loan number on or after October 1, 2026 [18], so a 2027 file would be reviewed under it and 13 CFR part 120. The 504 rate is set by SBA and approved by the Secretary of the Treasury [1], and the SOP says the 10-year Treasury rate is most commonly the benchmark for 20- and 25-year debentures [2]. The 10-year Treasury yield was 4.88% on November 9, 2026, and Prime was 7.00% [15]. The 7.00% effective debenture rate (Treasury plus about two points, including servicing and annual fees) and the bank's 7.50% fixed rate are assumptions.

Terms. A 504 loan runs 10, 20 or 25 years, with a maximum of 25 years for real estate; when a project includes both real estate and equipment, the maturity follows the category that makes up the majority of loan proceeds [2]. Real estate is about 72% of land, building and equipment cost here, so the model uses 25 years. A Third Party Loan must run at least 10 years beside a 20- or 25-year 504 loan, and any balloon must be justified in the loan report [2]; it may have no early call feature unless the loan is in default [1]. The bank loan's 10-year term and 25-year amortization leave a $4,163,540 balloon. Third Party Loans must at least equal the 504 loan, and must be at least 50% of cost when the borrower has operated two years or less or the project is for a limited or single purpose asset [1]; at $5,222,867 and 50.0%, the bank loan meets both.

Equity injection and its basis. 13 CFR 120.910 requires 15% when the business has operated two years or less, 15% for the construction of a limited or single purpose building or structure, and 20% when both apply, excluding administrative costs [1]. A still house and rickhouse are built for one use, so the model applies 20%, which with the bank's 50% minimum [1] caps the debenture at 30%. The CDC must address in its credit memorandum whether the property is limited or special purpose [2]; distilleries are not on SBA's example list, so the classification is a CDC determination the model assumes. The contribution must be cash, property bought with cash, or land that is part of the Project Property [1]; barrels do not qualify because they are not long-term fixed assets [1].

The debenture cap. 13 CFR 120.931 limits 504 loans to an outstanding $5,000,000 per borrower and affiliates, but allows $5,500,000 for each project of a Small Manufacturer in NAICS 31 to 33 with all production facilities in the United States [1]. Distilleries are NAICS 312140, with a 1,100-employee size standard [19], so the higher limit applies. It does not bind: at a 30% share with fees financed, it is reached at a project cost of about $17.8 million (about $16.2 million under the general limit). A second rickhouse or events hall would push the extra cost onto the bank and the sponsor.

Job opportunity. A 504 project must create or retain one job opportunity per $95,000 guaranteed by SBA, or per $150,000 for a Small Manufacturer [2]. At $150,000 per job, the $3,228,000 debenture requires 22 jobs. The model's payroll supports about 24 full-time equivalents: 15 in hospitality, five in management and sales, four in production.

Assumptions behind the model

DSCR by year and break-even

SBA loans must be so sound as to reasonably assure repayment, based on credit analysis that may weigh earnings or cash flow [1]. SBA's 504 procedures define coverage as EBITDA divided by combined debt service after the transaction and require at least 1.15 [2]. For projection-based projects, the CDC must analyze at least two years of projections, and if they show repayment in Year 2 but not in Year 1, the applicant must show liquidity to cover the Year 1 shortfall [2]. This model study counts Year 1 from completion, when the distillery opens; the lender should confirm that timing.

All rows are model results.

Coverage is -0.32x in Year 1, 0.40x in Year 2 and 1.44x in Year 3, and above 2.0x from Year 4. Year 2 does not show repayment. The cash DSCR, after the reserve and barrel fills, is -0.20x in Year 2 and 0.91x in Year 3. A 40% contribution (bank 50%, CDC 10%, $1,070,000 gross debenture) cuts debt service to $548,060 but lifts Year 2 only to 0.54x. Year 2 EBITDA of $296,007 cannot support any normal amount of debt.

Model results; the Trail average is 2.7 million visitors over nearly 70 destinations [3].

The break-even table states the credit question in visitor terms. To pass the 1.15x test in Year 2 at a 20% contribution, the distillery would need about 43,900 visitors in its second year: 37% more than the base case and 14% above the Trail's average per destination. At a 40% contribution, it would need about 39,200. A second-year craft distillery outperforming the average Trail destination is possible, but it is not a basis a lender can rely on without operating history.

At stabilization, the picture reverses. Year 5 coverage stays above 1.15x down to about 22,800 visitors, 46% below the base case, because by then the distillery sells its own four-year bourbon at wholesale and through private barrels, not only through visitors. The project's risk is concentrated in the first three years.

Returns

All rows are model results.

Returns are pre-tax over a 10-year hold. Unlevered cash flows start with project cost excluding interim financing, plus pre-opening costs and bridge inventory ($11,163,625); levered flows start with the sponsor's full $6,013,583. Distributions come only from cash not needed for later deficits, so none are paid before Year 4. The exit value of $19,291,747 capitalizes Year 11 NOI of $2,122,092 at an assumed 11.0%, and includes the working barrel stock rather than adding inventory on top.

The unlevered IRR is 12.3% and the levered IRR 14.3%, with a 3.27x multiple. Operating distributions over 10 years ($5,983,674) fall just short of the equity invested, so payback depends on the exit. A sponsor waiting four years for any cash needs patient capital, which is a reason to verify the source of the outside equity, not only its amount.

Sensitivity and stress tests

Two-way grid: interest rates and visitors, Year 5 DSCR

The grid moves the bank, debenture and interim rates together and scales visitors in every year.

Model results.

At stabilization, the project absorbs a 20% visitor shortfall and a 200-basis-point rate rise together and still covers debt service 1.68 times; each 100 basis points moves coverage only 0.2x to 0.3x.

Two-way grid: interest rates and visitors, Year 2 DSCR (the test year)

Model results.

No cell reaches 1.15x. Even 20% more visitors and rates 100 basis points lower give 0.89x. This is the central finding: within any plausible range of rates and visitation, a ground-up distillery financed on projections does not meet a 1.15x test in Year 2.

Downside scenarios

All rows are model results.

S1 (visitors 20% lower) takes Year 2 EBITDA to about zero and raises the outside equity needed to $4.91 million. S2 (wholesale volume down 40%, bulk price halved) moves Year 2 only to 0.30x, because the gift shop, not wholesale, carries the early years. S3 (operating costs up 10%, fill cost up 20%) cuts the levered IRR to 8.8%. S4 (prices 10% lower) brings Year 3 below 1.0x. S5 combines S1 and S4: Year 3 falls to 0.51x, outside equity rises to $5.89 million and the levered IRR turns negative, though stabilized coverage stays above 1.4x. S6 (loss of the reduced federal rate on house spirits) is a margin issue, not a solvency issue, at this scale. Every scenario fails Year 2 and every scenario passes at stabilization, so the remedy is to reduce the lender's exposure to Years 1 to 3, not to add margin later.

Program compliance

The checklist reads the modelled project against 13 CFR part 120 and SBA SOP 50 10 8.1 [2].

The one failure is decisive. On these projections the distillery cannot show reasonable assurance of repayment in its second year [1], and special-purpose collateral does not cure a cash flow gap.

Risks and mitigants

Model determination

As structured, the modelled project is not financeable as a projection-based SBA 504 loan. The structure itself is compliant: a 20% borrower contribution [1], a 30% debenture well under the $5,500,000 Small Manufacturer limit [1], a 50% bank first mortgage [1], and enough planned jobs to meet the $150,000-per-job standard for a Small Manufacturer [2]. The failure is coverage. A projection-based file must show repayment by its second year [2], and this distillery's Year 2 EBITDA covers debt service 0.40 times. Raising the contribution to 40% only moves Year 2 to 0.54x. No cell in the Year 2 stress grid passes.

The cause is the aging problem. The visitor business needs about three years to carry the debt, and the distillery spends $1.94 million filling barrels in Years 1 to 4. The contract-distilled bridge brings young bourbon to Year 1 and four-year bourbon to Year 3; without it, coverage would be 0.17x in Year 2 and 0.83x in Year 3, passing 1.15x only in Year 4 (1.20x), with $4.38 million of outside equity needed instead of $3.92 million.

At stabilization the project is a strong credit: 2.60x in Year 5, 2.98x by Year 10, and above 1.15x down to about 22,800 visitors. That supports a sequenced path on which a lender could likely finance it, with conditions:

1. Operating history first. The sponsor opens with the visitor business and bridge inventory, financed by equity and a conventional construction loan, and applies for 504 financing once 12 to 24 months of results show coverage at or near the Year 3 level. The regulation allows existing debt of up to 100% of an expansion's project cost to be refinanced into a 504 project that involves an expansion, where substantially all (75% or more) of the debt financed land, buildings or equipment [1]. Whether a second-phase expansion, such as a second rickhouse, could carry that refinancing is a question for the CDC and SBA.
2. Bridge inventory in bond before closing. At least 900 contract-distilled barrels, with warehouse receipts, title and gauge records, so four-year bourbon is available by Year 3.
3. Outside equity in cash. About $3.9 million beyond the 504 contribution, held in a controlled account and released against a budget for fills, pre-opening costs and deficits, plus a reserve of at least six months of debt service.
4. Tax opinions. Counsel's opinion on reduced federal rate eligibility for each product, and Kentucky counsel on the wholesale sales tax base and the replacement tax for the chosen school and fire districts.
5. Competitive and visitor evidence. A survey of the Nelson County distilleries' tours, pricing and capacity, and evidence for the visitor ramp, such as Bourbon Trail membership and tour-operator commitments.
6. Collateral and guaranties. An appraisal by an appraiser experienced with distilleries, personal guaranties from principals owning 20% or more [1], and key-person insurance on the head distiller.
7. Covenants. Quarterly visitor, sales and barrel-inventory reports; a minimum liquidity covenant; and no distributions until EBITDA coverage exceeds 1.25x for a full year.

On those terms, the long-run economics (coverage above 2.5x and a 12.3% unlevered return) can support SBA 504 financing. What this model study cannot support is lending to the projections before the visitor business has shown it can reach them.