Funding a winery: what investors and banks ask
Funding a winery means paying for land, building and equipment and also for the long wait before wine turns to cash. Here are the sources, the questions you will face and how to prepare.
What you are funding
A winery needs money in three places. Fixed assets: land, building, tanks and equipment. Set-up costs: licences, design and the work before opening. Working capital: fruit, labour, packaging and running costs until the wine sells. The third is the one founders under-budget, as ageing ties up cash for months or years.
Add a contingency line for cost overruns. Buildings and equipment rarely come in exactly on budget. Funders expect to see a contingency and will often ask for one if you leave it out.
Sources to consider
- Your own money, which shows commitment and is the first thing funders ask about.
- Partners or family who join as owners.
- Investors who take a share in return for cash and sometimes advice.
- Bank loans, which need security and repayments from cash flow.
- Equipment finance, where the machine is the security.
- Government schemes or grants for farm and food businesses, which vary by country and state and change.
- Customers through clubs or pre-sales. See wine clubs.
We cannot promise any loan or investment. What follows is how funders usually think.
Match the source to the need. Long-lived assets such as buildings suit long-term money. Seasonal working capital suits a short-term facility that is repaid as wine sells. Using short-term money for a long-term asset forces a refinance at a bad moment.
What a bank asks
A bank wants to know whether you can repay. Expect questions on your contribution, your experience, the security you offer, the licence position, the project cost and, above all, projected cash flow. Banks often look at the debt service coverage ratio, which compares the cash available with the repayments due. A ratio above one means the business generates more cash than the repayments due in the period. Lenders usually want a comfortable margin above that.
They will ask how repayments continue while wine is ageing. If your plan has no sales for eighteen months, say how you will pay the bank in that period. A project report in the format a lender expects helps. See writing a project report for a winery.
What an investor asks
An investor wants to see a market, a team and a route to a return. They ask who buys, what the margin is, how the brand grows and when they can expect to exit or receive a share of profit. They also ask who is running the cellar. See when to hire a consultant winemaker.
Be honest about risk. Harvest failures, licence delays and slow sales happen. A plan that shows how you would deal with each looks stronger than one that denies them.
The documents to prepare
- A business plan. See what goes into a winery business plan.
- A project report with costs and a monthly cash flow.
- Cost per bottle and pricing.
- Evidence from market research and buyer conversations.
- A licensing plan and the status of each permit.
- Profiles of the team and the winemaker.
- A sensitivity table: what happens if fruit costs rise, sales slip or a vintage is lost.
Reduce the amount you need
Every unit you do not need to borrow is a unit you do not repay. Rent or share equipment for the first vintage, buy fruit before planting, release a young wine early to bring cash in and start with a smaller scale. Phasing the build lets proven sales fund later stages.
Finally, keep a reserve. A winery without a cushion for a poor vintage is one bad harvest from trouble.
Check the terms of every source. Interest, repayment holidays, fees, security and any control that an investor will ask for all change the real cost. Ask for terms in writing, compare them side by side and take advice before you sign. A lender who understands wine may allow a repayment holiday that matches the ageing period. Ask the question rather than assume the answer.
Prepare for the meeting too. Know your numbers without notes, bring a one-page summary and be ready to say what you would cut if you received half of what you asked for. That answer shows how well you understand your own project.
Common questions
Can I get a bank loan for a winery?
It depends on your plan, security, experience and licence position. Banks decide case by case.
Do investors fund wineries?
Some do, usually for a clear market, a good team and a believable return. Expect questions on timing.
How much should I put in myself?
Funders usually expect a meaningful contribution. Ask your lender or adviser what they expect.
What do lenders worry about most?
Cash flow during the ageing period, licences and the winemaker's experience.
