Thursday, May 18, 2017
Stock Journal column
Consider ‘alternative’ finance options to fit capital requirements
By CHARLIE GOODE, Rural Business Support, Rural Financial Counsellor, South East
TRADITIONALLY, farmers have sourced finance from the major banks to purchase land and to finance
machinery purchases.
However, bank lending is generally restricted to property acquisitions, business expansion and
development, machinery leasing and the refinancing of existing loans.
Once a borrower’s loan to value ratios exceeds the 60 to 70 per cent range, alternative finance often
needs to be sourced from another lender.
When additional capital is required, perhaps due to drought or another unexpected event,
alternative finance in the form of seasonal crop and livestock finance may be sourced from pastoral
houses, livestock agencies, and finance companies.
The risk to the lender is greater with livestock and crop finance. Livestock and crops valuations are
subject to drought, disease and market prices. Therefore, the interest payable, currently in the
vicinity of 11-12pc, will be higher than loans secured against a mortgage on land which attracts
interest in the 4-6pc range.
Normally seasonal finance with a pastoral house or a livestock agency is required to be cleared every
12 months, but the amount borrowed may be reduced at any time without notice.
It is important to realise that the lender requires the right to take a lien registered with Personal
Property Security Register priority on all the farmer’s livestock and crops as security.
In the case of livestock finance, this means that the lender holds the right to access and keep tabs on
the borrower’s NLIS (National Livestock Identification System) transactions.
Livestock finance for livestock purchases and/or animal health is secured with a first ranking
livestock mortgage over all the livestock owned by the borrower.
Seasonal crop finance for purchase of seed, chemical and fertiliser is secured with a first ranking
mortgage on all of the crops grown by the borrower.
An advantage of sourcing loans from a pastoral house or livestock agency, such as Elders or
Landmark, is free access to their agronomists, animal health specialists and other professional
advisory services. This access is normally contingent on the purchase of fertiliser, chemicals and
animal health requirements through that agency.
Potential borrowers should have a strong understanding of their debt cover ratio (their earnings
before interest and tax). This will indicate the ability of their farming business to pay interest on their
loans when it falls due and the general solvency of their business.
Successfully obtaining a loan depends on developing a good business relationship with your lender.
This may be created through a finance broker or via face to face negotiation, but in any case, a wellconstructed business plan is vitally important.
The loan application, accompanied by a business plan, needs to be supported by historic balance
sheets and profit and loss statements.
A potential lender will be much keener to do business with farmers who prepare annual cashflow
budgets and operate and retain a good set of financial records.
This monthly column is provided by Rural Business Support – a not-for-profit organisation providing
services to help SA farmers make better business decisions.
Details: Rural Business Support, 1800 836 211 or www.ruralbusinesssupport.org.au