PathStone helps out smaller vineyards with finances

This article appeared in the Democrat and Chronicle on September 12, 2010.

Diana Louise Carter
Staff writer

When Art and Joyce Hunt took over the family farm in Yates County 37 years ago, they didn’t know what they were in for.

“At that time you could make a very good living growing grapes for Taylor Wine Co.,” said Art Hunt. But three years later, Coca-Cola bought Taylor and the bottom fell out of the local grape market.

Showing some guests around the winery on a sunny late-summer day recently, Art Hunt describes how his farm changed focus to survive the failure of some large winemakers in the Finger Lakes region. Forming their own winery, Hunt Country Vineyard, the Hunts participated in the genesis of the area’s small-winery movement, which evolved into a $3.2 billion business.

Today, even successful wineries like the Hunts’ face another problem: gaining the necessary credit and capital to make improvements or tide them over during times of the year when they have comparatively little money coming in the door.

“It’s increasingly difficult for small businesses to get even lines of credit,” said Lee Beaulac, senior vice president of economic development for PathStone Corp, a non-profit economic development agency based in Rochester and formerly known as Rural Opportunities Inc. A few years ago, wineries started calling on PathStone, whose services include small business loans because they weren’t getting the loans they needed from traditional sources.

PathStone called together Hunt and some winery owners who had to go to out-of-state lending institutions to find money.

“It is an issue for our industry, which is sort of ironic because we are one of the few growing industries in New York state,” said Jim Trezise, president of the New York Wine & Grape Foundation. He participated in those discussions. “One of the things PathStone was trying to do was bridge the understanding gap.”

The discussions revealed a two-way disconnect, Beaulac said. “The banks did not understand what small-farm wineries needed, and the wineries didn’t understand banks’ needs,” he said.

For instance, Hunt explained, banks weren’t used to dealing with businesses that typically take seven years to produce their first income and an additional three years before breaking even. Meanwhile, he said, “There’s been a lot of people who started with a dream rather than a very good business plan.”

Nevertheless, Trezise said, a low rate of attrition amid the growing number of wineries suggests they are good credit risks.

The industry lacked a benchmarking study that would help wineries quantify whether they were successful and creditworthy. The recently renamed Farm Credit East, a cooperative lending institution for farmers, solved that problem by conducting the necessary study.

Bank of America, the largest lender to small businesses in the nation but not necessarily a major player among small Finger Lakes wineries, provided two grants to PathStone. Those grants and a $5 million loan helped PathStone make loans to small agricultural businesses, including wineries, and create workshops for their owners and employees.

Bank of America’s John M. Pitton said PathStone has more expertise in this niche market. “They’re feet on the street,” he said during a tour at Hunt Country. PathStone also has the ability to take $1 from Bank of America and turn it into $10 worth of loans by partnering with another commercial lending institution.

The cooperative effort’s results can be seen in the newly refurbished wine production operation at Hunt Country. The Hunts had been thinking about an expansion that would bring their production into an insulated building. Two years ago PathStone agreed to lend the Hunts $30,000 for the equipment, which helped persuade Five Star Bank to finance the building’s expansion and upgrade.

“During the current downturn environment, that ability to come in and take a second-position loan becomes increasingly important,” Beaulac said.

PathStone officials say they’ve had some success in the winery business and now want to turn to credit gaps in other aspects of agriculture and related businesses. Bank of America recently announced it was setting aside $100 million nationally for similar initiatives with community development finance institutions like PathStone.

And the Hunts? They’re working on paying off their newest loans, getting the business ready to pass on to the sixth generation of their family to run the farm.

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