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MANAGEMENT Community Bank in Southold, N.Y., which has made loans to several Long Island-based vineyards. "Reli- able income stream, credit history and an ability to withstand tough economic times are important. Lenders try to protect themselves from a worst-case scenario." Banks now look for new and diversified revenue sources such as agri-tourism, rental income and consulting, and they prefer lend- ing to entities such as LLCs or corporations instead of partner- ships. Protection from other credi- tors is critical. Banks will try to get as much collateral as possible and often wind up with more than they need. In case of default, lenders would like to see other income potential from the property, such as build- ings which can be rented in order to generate income. Historic per- formance is a key indicator of future success. Past performance gives the bank a perspective of what kind of customer they may be dealing with. It's tough to make an informed decision about a company with poor records. Data showing how you've done compared to the general market can be used to sup- port the records you submit. A sim- ple tip to build lender confidence is to respond to any information request within 24 hours. "Lack of internal preparation COMMON SMALL-BUSINESS LOANS Business Acquisition Loans: Provided specifically for the pur- chase of an established business. Debt Financing: Normally done through a bank or traditional lend- er, such loans are limited by the amount of personal assets the business owner has available to use as security against default. Line of Credit: Designed to ease cash-flow pain, lines of credit are based on accounts receivable and current inventory and often have a high interest rate and late fees. Long-Term Loans/Business Expansion Loans: Used for busi- ness expansion, improvement or acquisition of major equipment or real estate. Micro-loans: Up to $35,000, these are administered through either not-for-profit or non-profit organizations approved by the Small Business Administration (SBA), with a lot of stipulations. They generally come in six-year terms, or less. Revolving or Open-End Credit: Prearranged and for specific amounts, special checks must be written and repayments made over a specified time period. Finance charges are normally based on the amount of credit used plus any outstanding balance. SBA Commercial Loans: Loans made by private-sector lenders (banks, etc.) to small businesses. SBA guarantees repayment, making them difficult to secure. Secured Working-Capital Loans: Collateral gets the capital. Should you default, that's what the lender will seize. Short-Term Loans: Used for accounts payable, inventory and working capital. They usually require less collateral and have a smaller interest rate. Start-Up Loans: Provide capital to new entrepreneurs. Unsecured Working Capital (Cash-Flow) Loans: Unsecured loans provided strictly as working capital. 118 VINEYARD & WINERY MANAGEMENT JAN - FEB 2012 and analysis" is a common mistake people make when applying for a loan, said Scott Shapiro, senior vice president at Warren Capital Corporation in Novato, Calif. Other problems, he said, include a lack of quality financial statements, poor understanding of cash-flow cover- age as it relates to the size of the request, unrealistic estimates for real estate and inventory values, unclear explanations for the use of funds or payback sources, and a lack of explanations for current issues facing the business and how applicants are working around them. "If there is a 'story' to go along with the company, then it needs to have clear explanations and a defined path to more profitable operations," Shapiro said. "On lines of credit, we are still seeing challenges on inventory-advance rates and most everyone is look- ing for lower loan-to-values on real estate. We are quite active in doing leases and loans for production equipment, barrels, etc., for clients in the 'A+' to 'B' range." INTANGIBLE ASSETS While good record keeping is critical, numbers don't always tell the whole story. There are intan- gible assets some banks will consider, such as experience, competition, whether you're in a growing market and whether your product or service is unique. Small- business people tend to "co-min- gle" business and personal funds. Banks are adverse to this. "While the credit market is not as tight as it was just two years ago," said Diana Wlodarczyk of Full Circle Financial LLC in Wenatchee, Wash., "credit information remains the No. 1 issue." Like others inter- viewed here, Full Circle typically wants to examine an applicant's tax-payment records. "Potential borrowers have been relying on cash or refusing to buy new equipment," Wlodarczyk added. "This may no longer be nec- essary as the approval ratio is turn- ing around." A specialist in granting loans for equipment purchasing, WWW.VWM-ONLINE.COM