Several loan choices are associated with financing a vineyard, such as the SBA loan or a more traditional business term loan. Furthermore, there are other ways of gaining access to loans and capital that can be granted and aren’t necessarily associated with the business of a vineyard. It’s important to have a full grasp of all the costs as well as the time frame when deciding whether or not to go through with a vineyard purchase and build-out.
Of all the media attention that Brad Pitt and Angelina Jolie have received in the past two decades, perhaps the most interesting has been coverage of their messy “vineyard battle.” To make things short, Pitt and Jolie split a vineyard purchase in France. After the divorce, Jolie sold her shares to an individual that Pitt wanted nothing to do with. A lawsuit resulted, capturing the general public’s attention. You don’t have to be Pitt or Jolie to buy a vineyard and enter the wine industry, though, and it could be one of the best decisions of your life. If you aren’t planning to pay cash and are wondering how vineyard and winery financing works, look no further..
How do you get vineyard financing?
The first step to getting financing for a vineyard is to assess what you plan to do and what vineyard financing solutions might work. You can use separate financing vehicles for purchase, construction, equipment, and operations. Many of these loans will be structured as business loans, but some can vary.
The stages of financing a vineyard
Whether you are looking in Burgundy or in Napa Valley, the process for purchasing a vineyard is similar. If you are just looking at options, or already have some land and are looking at how to construct it, there are two main stages in buying and operating a vineyard. This is important to note because, before investing in a capital-intensive project like a vineyard, you need to be well aware of the various costs associated with doing so.
- Construction and Operations
The first step is to purchase the vineyard. Here are two options to work with.
Purchase raw land yourself with a land loan
In order to get a land loan, the land must meet the following requirements.
- Down payment of 20–50% of the purchase price
- Fixed or floating rates
- The property is agricultural
- The property is a minimum of 10 acres
- Credit score north of 680
Purchase an existing vineyard with a business loan
If you don’t have the time or the will to construct a vineyard yourself, then you might want to consider purchasing an existing vineyard. Here are some loans to look at.
Small Business Administration (SBA) 504 loan
SBA loans are guaranteed by the federal government up to 85% via the Small Business Administration. The government backing lets lenders approve borrowers more freely than they otherwise would in order to support small businesses. SBA 504 loans are vineyard loans that are specifically geared toward purchasing real estate and doing renovations.
- Down payment of 10%
- Fixed interest rate with a ceiling, making it more affordable (maximum interest rate)
- 20-year loan terms
- No further collateral is needed
The SBA 504 loan is a commercial loan geared toward owner-occupiers looking to commercialize their existing assets. This is important to note because, under the terms of SBA 504, the owner needs to occupy at least 51% of the property. The remaining 49% can be leased out to third parties.
Traditional business loan
A traditional loan, also referred to as a term loan, is similar to the SBA business loan, but it is not backed by the government. In order to get any kind of traditional business loan, you will need to open a business bank account. Thus, the lending requirements will differ significantly between lenders. Furthermore, a term loan won’t offer a 20-year fixed loan. Instead, the loan options will be more along the lines of 3–7 years.
- Down payment of 35%, minimum
- Generally, floating interest rates
- 3–7-year loan terms
- Collateral needed
Remember, the collateral that’s needed can also be the land that is held by the owner, assuming that the borrower owes the land mostly outright. When looking at options for a winery loan, make sure you take into account all available assets.
Pro tip: vineyards as an investment
Vineyards are becoming a better investment all the time. The reason? One word: Asia. The rise of Asia has led to a rise in wine prices, according to Benoit Debaur. As sales manager of a 300-year-old chateau in France, he should know.
Andrew Johnson, a Harvard alum with experience in wine, has seen it as well.
Construction and operations
Once the vineyard has been purchased, either via a land loan in its raw state or through other financing as an already operational vineyard, there will, of course, need to be more money put in. This money can finance labor, administrative needs, and the hard equipment needed to operate a vineyard. Here are some loans you might want to look at that can provide you with working capital.
Small Business Administration (SBA) 7(a) loan
In comparison with an SBA 504 loan, an SBA 7(a) loan is more geared toward financing business operations and managing cash flow within the vineyard. An SBA loan can be used for various things related to the operation of a vineyard, such as staffing, transportation, and logistics, as well as equipment.
- 10–15% down payment minimum
- Generally, floating interest rates
- 10–25-year loan terms
- Collateral needed
The loan term depends on what the loan is being used for. Although an SBA 504 is more geared toward real estate, real estate purchases that are included in an SBA 7(a) loan will extend the loan term to 25 years.
Equipment loans are pretty self-explanatory. They are loans specially designed to help businesses invest in the equipment they need to run operations. The equipment purchased via the loan acts as its own collateral, similar to a car loan. Thus, no additional collateral is needed, and, in many cases, equipment financing will lend up to 100% of the purchase value of the equipment.
- 100% financing available
- Floating interest rates (with different markups depending on the lender)
- 5–6 year loan terms
- No collateral needed
There are also a multitude of personal loans, farm loans, and alternative lending options you can choose, but the above options are the most straightforward. This might not give you a complete picture of what you need to do, however, if you are trying to start a vineyard from scratch via a purchase of raw land.
Pro tip: wine as an investment
Wine has become a very popular alternative asset for investment. According to Simon Litt, an expert in alternative investment strategies at the CFO club, it stands unparalleled.
How difficult are the loans to get exactly?
Borrowers all have different stories on this, based on their own experiences. Heidi Moore, an insurance agent at Country Financial, has her own opinion.
Is owning a vineyard profitable?
It can be, but it depends on a bunch of different factors related to wine consumption, business, and how the winery is run. That being said, being able to tell your friends you have a winery is also a valuable resource.
How much does a one-acre vineyard produce?
One acre of a vineyard should produce between 3 and 5 tons of grapes per harvest. This translates to 190–315 cases of bottled wine.
How much does it cost to plant one acre of wine grapes?
Anyone in the wine grape growing business will tell you the costs can vary. However, in general, you are looking at $3,000 to trellis and plant the grapes.
- Several loan choices are associated with financing a vineyard, such as the SBA loan or a more traditional business term loan.
- When looking at financing a vineyard, there are important things to consider, such as your plan and what exactly you need financing for.
- The SBA (Small Business Administration) provides some very good loans for purchase, construction, and operation, with their SBA 504 and SBA 7(a) programs.
- Buying the land and constructing a vineyard will be a substantially different process than buying an already built, functional vineyard.
View Article Sources
- 504 loans — Small Business Administration
- 7(a) loans — Small Business Administration
- Vineyard Uses Rural Development Funding To Help Grow More Than Grapes — U.S. Department of Agriculture
- Wineries and Vineyards — Florida Department of Agriculture
- You May Be Able to Buy a Vineyard, and You Didn’t Know It — American Vineyard Magazine
- Compare Business Loan Rates — SuperMoney
- Complete Guide to Small Business Loans — SuperMoney
- How to Finance a Business — SuperMoney