One thing that is certain for a farming business is that nothing is certain! When your income depends on factors out of your control, debt becomes a part of life that enables you to fund working capital or expand your business.
But when it comes to securing agricultural finance, it’s not so straight forward and it’s important to take the time to consider the right lending options for you.
So if you’re looking to build your business or require funds for working capital, you need to be prepared.
Things can change quickly in a farming business – from major equipment breakdowns to new technologies that increase operational outputs or the availability of land for purchase. If you don’t have your funding lines in place you could miss out on opportunities which could make a significant difference to the long-term profitability of your business.
What you need to do:
#1: Take your time, it takes time
As a rule, most loans for agri-businesses are assessed on a case by case basis and are subject to much stricter lending criteria than standard business loans or loans for hobby farms. The application process can take a considerable amount of time and eligibility will take into account a number of factors that may include your credit rating, income, remoteness of your business and current equity ratio.
Not only does it take time to prepare all the documentation to begin the application process, it’s also important to allow time for your trusted advisors to be involved and to help you make a well-considered decision. The success of a farming enterprise usually reflects long-term financial viability, so decisions associated with lending need to take into account all aspects of your business including business structure, long-term succession plans and other family and business agreements in place.
#2: Seek advice
Your trusted professionals such as your mortgage broker, financial adviser, accountant and lawyer should be included as an important part of your financing decisions. In farming businesses, the lines between personal and business affairs can be blurry and seeking professional advice can help you to make a more informed decision which considers all aspects of your financial life including:
• Structuring your loan for tax advantages;
• Meeting strict rules associated with loans for companies and trusts;
• Helping you achieve a better negotiating position for equipment purchases when funding is secure;
• Identifying alternative financing options and debt repayment plans to help achieve goals more efficiently and in line with your strategic objectives;
• Understanding the full implications for funding on your insurance, credit rating and long-term financial future; and
• Considering how the debt will impact on your overall succession plans.
We can help you coordinate the process through our collaboration with a range of farming professionals, including your lawyer, insurer, accountant, stock agent and lender.
#3: Keep the big picture in mind
Your funding needs and priorities should always be considered within the context of your overall long-term strategic plans. You need to be prepared if your business plan is to grow and you will need to consider:
• What does opportunity look like for your business?
• How much will you need to capitalise on the opportunity at hand?
• Who will the new opportunity impact (within the business and externally)?
• How will the new opportunity impact on other business goals?
Some Good News
The Farm Debt Mediation Bill has was passed through the South Australia Parliament in July . The new legislation makes mediation mandatory before enforcement action is taken, with the aim of protecting farmers’ financial interests. Farm Debt Mediation is already legislated in New South Wales, Queensland and Victoria. Regardless of the new legislation, understanding the implications on your long-term financial viability and personal financial plans is vital when it comes to securing finance.
At Financial Services SA, we have a personal interest in helping family farming businesses implement practical solutions to help them make the most of their situation. I have been helping primary producers and family business owners in rural and remote locations for more than 35 years.
If you would like more information about getting your family farming business ready to capitalise on opportunities, I invite you to contact me today on 08 8253 2906 or email info@financialservicessa.com.au
This advice is provided by Phillip Dibben under Financial Services SA rural business consulting services.
Phillip Dibben 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 391835, 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.
[1] “Farm Debt Bill to be discussed” article – Stock Journal – Thursday 7 June 2018, P3