The Royal Commission into Banking has resulted in tighter lending practices, not only by the major banks, but also by most lenders.
Farmers are now faced with extraordinarily long lead times for securing finance, more formal annual review processes for renewals and additional scrutiny and documentation requirements. Without the finance you need, you could miss out on business opportunities. Find out what you can do to stay ahead of the game.
“Review, review, review!” Dibbo’s advice is so clear in my mind, and I’m so glad we followed it. Even though this season was so poor, through Dibbo’s guidance and regular review processes, we were able to demonstrate the resilience of our business and that we are well placed to achieve success in the long-term.”
More than ever it’s important for farmers to be prepared when it comes to securing finance. Not only are the applications and associated documentation onerous to complete, the banks have more stringent requirements to approve credit.
To exacerbate the problem, many lenders have only conducted reviews ‘by exception’ over the last few years, leaving many lenders with limited records on their clients. Good farming operations are no longer enough, thorough records are now needed.
Some bank approvals are now taking up to three months, and some banks are requesting documentation for renewal meetings up to two months in advance. Planning ahead has never been so important if you want to be able to refinance on your terms, without the pressure, to get the funding you want in the timeframe you need.
What do you need to do?
Review, Review, Review
Regular reviews should be an important part of your business operations. They enable you to plan ahead to consider risks and enact contingency plans. Reviews can help you better understand your margins and performance throughout your production cycle so you can be proactive with your marketing strategies. Importantly, they can also help you adapt to seasonal conditions and make more informed decisions about how to maximise your returns.
Reviews conducted throughout the year can also assist at your annual financial review in that they help you demonstrate sustainable business practices. You want to show your lender that any poor returns are the result of seasonal influences or market conditions, rather than systemic management concerns. Regular reviews can also help you build a more resilient agricultural business.
Act sooner rather than later
Using your review processes means you are well placed in the short term to cost and address appropriate mitigation strategies, including alternative planting and stock options if you have concerns about the season ahead. Put a detailed, thorough budget together to outline your intended strategy and begin any necessary financing processes early rather than waiting until your review. You don’t want to run the risk of not having the funding in place to plant next season’s crop. Scenario planning for stock and crop options is now a whole lot easier with business management software designed specifically for farming businesses.
Don’t forget your long-term plans. A structured succession planning process that considers the goals of the business and funding your own personal retirement needs is also an important part of your farming operations.
Utilise your professional support networks
Take advantage of your professional network and their specialist knowledge. Trusted professionals such as your stock agent, broker, financial adviser, lawyer and accountant can help improve your financial outcomes and business productivity. Engaging a professional can help you to get your ideas off the ground, assist with developing a business case, and help identify the pros, cons and funding requirements for new initiatives. These professionals can also help prepare necessary documentation to help secure and maintain finance, or sit in at your annual review.
You may want to consider establishing an advisory board to tap into a range of expertise to help you make the most of your farming business.
If you would like help to get your documentation in order for securing finance or preparing for your annual review, I encourage you to contact me on 08 8253 2906 or email email@example.com
I specialise in offering integrated solutions to multi-generational family groups that consider all aspects of your personal, business and farming lives.
Our recent article “There’s more than one way to shear a sheep” provides further information about lending options beyond the banks.
This advice is provided by Phillip Dibben under Financial Services SA rural business consulting services.
Phillip Dibben (ACR 420263) is an MFAA* Approved Credit Adviser, including SMSF lending, and is an Authorised Credit Representative with Riverland Lending Services Pty Ltd, ABN 37 1415 814 080 ACL 391825, and is licensed to provide advice in all consumer and business loans including equipment finance. All loans are subject to lending and approval criteria.
Phillip Dibben is also a financial adviser at Active Financial Management. Active Financial Management and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306 trading as Fortnum Financial Advisers.
This information does not consider your personal circumstances (including taxation) and is of a general nature only. You should not act on the information provided without first obtaining advice specific to your circumstances.
*The Mortgage & Finance Association of Australia (MFAA) is the peak national body providing service and representation to over 11,000 professional finance brokers (mortgage and finance brokers, mortgage managers and aggregators) to assist them to develop, foster and promote the mortgage and finance industry in Australia.