Issue link: http://winesandvines.uberflip.com/i/80303
CO VER S T OR Y A, B & C credit A CREDIT: An established business and business model with posi- tively trending sales and strong cash flow. "Pretty much at any size of business," says Rob McMillan of Silicon Valley Bank. B CREDIT: A business that shows weakness in one of those areas but has a good secondary position in collateral or other backup. "A good what if." Examples would include: some weakness in sales but a lot of equity in the business, a guarantor, a less-defined brand making strides in sales and nearing profitability. "Something that makes a bank want to take a harder look," he says. C CREDIT: "Something that's not bankable." A business that can't support payments through current cash flows and only makes sense based on optimistic projections. "At the top of the market, a bank might take a risk just on a fore- cast and believe it a little bit more," McMillan says, "but in a time of economic uncertainty, they have to look at (aggressive projections) with a bit of suspicion. You can't predict what will happen with sales and profit to offset the risks." B.N. Lender types by size and specialty Each type of lender will have its own limits on the amount it can lend and the level of credit risk it can bear (i.e., the creditworthi- ness of the borrower.) Some lenders are effective for certain types of loans and clients, while others are not. Across lenders, "the level of understanding varies a great deal, and the cost of borrowing varies depending on the understanding," says Chris Costello, who led various financing efforts for Kosta Browne, where he is a founder. Less understanding leads to more cost. Community banks: You know the bank from its local presence, and the originator of the loan may well be the same person you deal with for your other relationships with the bank. Commu- nity banks focus within their communities, and their smaller size make them a more likely source of small loans and potentially more lenient minimum-credit standards. Like any bank or lender one deals with, except at the highest levels of creditworthiness, you will generally be expected to sign a personal guarantee. Community banks serve a wide array of businesses, so you may not find specific wine expertise in the team that originates and services the loans. Specialty banks: While many types of banks have entered and exited the wine space, the advent of specialty banks in the 1980s—specifically focused on serving business customers and often specific types of business customers—has created entrants that have stuck. With an explicit focus on banking wine and technology com- panies, Silicon Valley Bank (SVB) is the most visible of the play- ers; it made its first dedicated wine loan in 1994. First Republic also has turned its attention to wine; recently it recruited staff from SVB to build the practice. 28 WINES & VINES SEPTEMBER 2012 WINE INDUS TR Y FINANCE