Farm loan caution in uncertain seasons
ABARE executive director Jared Greenville completed a
recent article on volatile seasons with these words:
“Rather than growing the size of the enterprise or productivity by much, they’re setting the business up to manage the downside risks by simply not being as eager to borrow.”
These are wise words because the future looks quite risky. The best way to minimise risk is to look for ways to relieve cost pressures. Debt relief would be one of the first. A perfectly happy farm loan can morph into a dangerous farm debt in just one bad season.
Banks have been very lenient to borrowers since Covid. There are signs that they are starting to lose patience with farm loan defaults and look to recovery action like receivership. The current boom in prices of farmland has been partly caused by a decade-long boom. Banks seeking to recover debt, may seek to sell mortgaged farms before the boom busts.
“Borrow in good times; Refinance in the bad”.
A farm annual Profit and Loss statement often shows banks earning more out of the farm than the farmer. A farm loan consultant would know that dangerous debt can be reduced by a variety of means. The sale of an unproductive block may be one way. A write-off by a bank that has treated the borrower badly might be another.
Debt refinance can allow the farm loan cleared much faster or managed more easily. Farmers going to farm loan consultants probably find, as those coming to us do, that
negotiations with the bank can sometimes yield them more profit than they have earned at farming. That particularly applies to those farmers who have been tricked by the bank into unaffordable debt.
In running my own merinos in the NSW Central West and Beef cattle in the southern tablelands I paid very close attention to my farm loans. Developing techniques and strategies with Profit was the main goal. That is because profit is the main way of clearing the farm debt that many of us need, to buy the place. There is nothing as good as farming debt-free!
Farm Loan Seeker
To make sure farmers get the right loan at the right price with the right loan terms we invented the “
Farm Loan Seeker” (FLS)service four decades ago. Today it is an electronic means of borrowing without using an expensive bank-paid mortgage broker that just adds big costs to the loan. Farmers can do their own loan hunting very successfully online with an FLS. The inexpensive FLS comes with a guide on dealing with the bank to get the best deal.
GBAC provides optional support for various parts of the process.
Don’t assume that the people offering you a loan will look to your interest before their own, any more than the person buying your livestock, grain, fruit or milk will. That is rarely the case. The Farm Loan Seeker I originally invented in 1987 when banks were first de-regulated. As well as helping other farmers get a fair go from the banks, I was running my Haddon Rig based merinos at Tullamore in NSW and heading up one of the largest branches and District Councils in NSWF.
