If you’re interested in applying for financing to buy or improve a vineyard, it’s essential to understand how lenders view these loans.
In general, vineyards are classified as risky investments. Expect stricter loan terms (like higher interest rates or shorter repayment periods).
Bankers will evaluate your financing based on several factors, including your ability to manage the vineyard, the size and location of your land, the types of grapes you grow, your financial standing, and the earnings history of any other businesses you own.
You must also be prepared for lenders to scrutinize your vineyard operation, especially if you’re a new vineyard or don’t have established grape contracts. Most lenders (mainly traditional banks) will consider whether you’ll own your grapes or have contracts with big wineries to buy them.
What are the challenges in vineyard and winery financing?
Small wineries and vineyards are unique ventures, and because of their relatively niche nature, financing them can be challenging. Unlike traditional farmers, many vineyards and winery owners often focus on producing unique varieties or developing particular niches.
Return on investment may not always be the primary goal—and this introduces a higher level of third-party risk.
Borrowers new to the wine business and don’t have much experience are seen as even riskier. After all, starting a new vineyard involves a sizable upfront investment, and many beginners overlook the costs that will accumulate in the second and third years before vines begin to produce significantly.
What are the typical characteristics of vineyard and winery loans?
- Operation loans for vineyards are usually short-term (with a 12-month cycle), and you’ll likely get financing for no more than 65 percent of your growing costs.
- Equipment loans typically require a down payment of 15 to 20 percent and offer terms ranging from three to seven years.
- For vineyard real estate, loans usually span from 10 to 20 years, and a 35 percent down payment is required.
Loan rates might be adjustable or fixed, with annual payments, and you should be aware that there’s usually a penalty for early repayment. Also, unlike home mortgages, you can’t finance 90 percent of a vineyard for 30 years.
How do you start applying for vineyard and winery loans?
Step #1: Build your plan.
Lenders will want to see that you know what you’re doing, and the best way to prove that is to have a solid business plan. What are your reasons for starting a vineyard? What do you hope to achieve with it? Are you driven by a passion for wine and want to sell directly to your community? Do you want to cultivate a vineyard for personal enjoyment?
Clarify your vision and explain how you intend to generate income. For example, many vintners host special events like weddings, tasting events, or winemaking classes to generate revenue.
Step #2: Review your finances.
This step typically goes hand-in-hand with planning. Understand what you can afford for a down payment. Do the math to get a realistic picture of your repayment capabilities and what loan term suits you best.
Don’t forget to consider whether you’ll need environmental assessments, construction, or new equipment.
Step #3: Choose a loan program.
The right financing depends on a lot of factors, primarily whether your venture is commercially motivated or is more of a hobby.
If you’re unsure what product is right for you, don’t worry—a suitable lender can match you with the most appropriate loan solution. That said, it’s still a good idea to familiarize yourself with the options available:
- Land loans – This type of loan (sometimes called agricultural loans) allows you to develop your property as you see fit, provided that your financials, land location, and intended use meet the lender’s criteria.
- Hobby farm loans – If you’re cultivating a vineyard more for personal fulfilment than profit, this loan might be more suitable.
Hard money loans for wineries and vineyards
These loans are typically provided by lenders specializing in short-term bridge loans and are secured against the value of the winery’s assets.
The interest rates and fees are higher compared to traditional loans, but they also offer more flexible terms and repayment options. This is why hard money is a solid alternative for wineries needing a capital boost.
Unlike traditional loans that assess creditworthiness and income, hard money loans for wineries focus solely on the real estate (the winery) used as collateral.
The funding timeline is therefore quicker compared to traditional bank loans that often involve lengthy paperwork and approval processes.
Because hard money loans base eligibility primarily on the collateral(the winery property), they are accessible even to borrowers with less-than-perfect credit or unconventional financial histories.
Hard loan repayment terms are very different from traditional loan repayment terms. Whereas conventional loans may extend up to 30 years, hard money lenders typically expect repayment within 12 to 36 months.
This means you need a solid exit strategy—you have to be able to sell the property within that period or refinance with a long-term loan.
One of the most significant advantages of winery hard money loans is their flexibility. Unlike traditional Mortgage loans with rigid criteria and lengthy repayment schedules, hard money loans are customizable.
You can negotiate interest rates, loan duration, prepayment penalties, and payment structures to fit your budget and business objectives.
Speed of funding is another advantage. As you know, waiting months for a traditional bank loan isn’t feasible when you need money immediately. Hard money loans for vineyards and wineries can provide funds in as little as one to two weeks.
Winery hard money loans are also advantageous for borrowers with less-than-ideal financial records. Hard money lenders don’t focus on traditional metrics like credit scores and current cash flows. Instead, they prioritize the collateral value of the real estate and the soundness of your business plan.
Step #4: Submit your application and all the documents required.
Different lenders require different documents for winery loans, but here are some usual ones you probably need to prepare.
If you’re borrowing from a traditional lender, they will likely ask for:
- Your personal and business tax returns for the past 2-3 years
- The winery’s balance sheet, income statement, and cash flow statement (if established)
- Copies of any relevant licenses and permits required to operate your winery.
- Documentation of your winery’s income streams (this can include sales receipts or contracts with winemakers if applicable)
- Your personal and business credit report
If you’re applying for a hard money loan for wineries and vineyards, you will likely need to submit:
- Collateral information (details about the property or assets, including vineyard land and equipment)
- Real estate appraisal (if the loan involves purchasing land or refinancing existing property)
All lenders will require a business plan outlining your winery’s concept, target market and marketing strategy, financial projections, and management team.
If you are new to the business, it might help to show lenders that you have partners who are more experienced and can bring unique skills or resources to the table—for example, if there is a winemaker or a marketing guru on your team, make sure to make that known.
Lenders want to see that you and your partners have strong business acumen. After all, while the wine industry can be glamorous, passion alone won’t guarantee success.
Choosing a high-quality vineyard site is also crucial. Always prioritize soil quality, climate, and access to water. Don’t get swayed by sentimentality. Some lenders prefer wineries that are located near other wineries. These “winery clusters” tend to attract more customers and benefit everyone.
Demonstrate to the lender that you see your vineyard as a business and not just as a lifestyle. They should understand that you are committed to long hours and hard work, especially in the early years.
Be conservative when choosing a financing solution. Ideally, winery loans shouldn’t exceed half your annual sales.
Step #5: Stay in touch.
Maintain contact with your lenders even after your loan is approved. Establish trust and credibility. You never know when you might need another loan, and it’s always good to have a positive relationship with your lender.
How do you choose the right winery and vineyard lenders?
Choosing lenders who understand the wine business and genuinely care about your vineyard’s success can significantly improve your chances of getting approved for a loan.
Private agricultural and hard money lenders are often more flexible in customizing their loan programs than traditional lenders because they have a deeper understanding of your sector’s unique challenges and needs.
Working with commercial real estate lenders is also a good idea because they see wineries as commercial properties. They understand the challenges you may face and how to anticipate and address them effectively.
Turn to Private Capital Investors
If you’re looking for vineyard financing from commercial property and land loan experts committed to supporting your goals, Private Capital Investors is here for you.
We offer financing for commercial and agricultural real estate, including vineyards. Contact us to tell us about your project.
