SBA 504 Financing for Wineries and Vineyards

Wine glasses

If you own a winery or vineyard and are looking to expand it, you may find it difficult to secure financing. Even though the wine industry is a booming one, many banks back away from offering financing for this type of business. The exception to the rule is if you already own a very successful winery and have the experience to back it up – then you might find a bank or two willing to play. Otherwise, you are on your own for financing. Luckily, the SBA 504 loan offers a lucrative solution.

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What is the SBA 504 Loan?

SBA loans are Small Business Administration loans that the SBA guarantees. If you were to default on your loan, the SBA would pay the entity that funded the loan a portion of the funds back. This makes it easier for lenders to fund loans for winery and vineyard businesses that they would otherwise consider too risky.

The SBA loans often have very low down payment requirements. For example, wineries and vineyards only need to put 15% down before securing the loan. If you don’t have the vineyard component and rather have a tasting room or kitchen, you may even be able to make a lower 10% down payment. This is vastly different from what you’d find from a standalone loan from a lender that would likely want between 35% and 50% down.

Uses for the SBA 504 Loan

Owners of wineries and vineyards can use the 504 loan for a variety of purposes that include:

  • Building upon an existing winery or vineyard
  • Building new areas
  • Improving land that you already own

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How SBA Loans Work

The SBA loan works differently from a loan you’d get straight from the bank. It actually has three components. You’ll have a traditional bank that must provide half of the financing. This is the first lien on the property. You’ll also have the developer that provides the SBA loan, which is usually up to 40% of the financing. The remaining 10% or whatever amount the lender decides you must contribute comes from your own funds. Business owners can borrow up to $5 million for the SBA portion of the loan.

The good news is that SBA loans usually have below market interest rates and fees that total around 2.5% to 2.65% of the loan amount. You do not need to put any additional collateral down for the loan. The catch, however, is that you’ll have a prepayment penalty for the first 10 years of the loan. This is in an effort for the SBA to make money on the interest in exchange for taking the risk on your loan rather than you paying it off if you hit it big right away.

The SBA 504 loan makes it easy to build or expand your vineyard or winery. It’s an affordable and non-conventional way to get the financing that you need that many other standard banks would not provide.

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