Getting your farm finance approved

Securing finance is an ongoing and tedious task for many farmers. The Royal Commission has highlighted inefficient processes between Superannuation, Banking and Financial Services Industry. The responsibility, now more than ever, is on the farmer to provide all the data required to get the finance approved. 

This change protects all parties involved. The downside to this is that the farmer needs to supply a lot more data in order to apply for finance - which can be a time-consuming and monotonous task.

Banks want to know that all borrowers and guarantors are honest and have integrity. They need the applicant to be confident and have a reputable background, education, industry knowledge, experience and ownership in the business they operate to be successful. They may also ask about your licensing and whether or not you have a criminal record. 

As history is the best predictor of the future, a bank will examine the personal credit of all borrowers and guarantors involved. Sound business and individual credits are a must.

Your finance application will need to answer the following questions:

• Have you always repaid your debts on time?
• Do you have a good history of savings?
• Do you have a stable income/cashflow?
• Do you have stability?
• Do you have history of defaults, writs, judgements or bankruptcy?

Banks will consider the value of your business' assets and personal assets of the guarantors as a secondary source of repayment. Collateral is an important consideration, but its significance varies depending on the type of finance you are applying for.

Your finance application needs to answer these questions:

• What type of security do you have available? E.g. property, land, machinery/equipment.
• What's the market value of the security?
• Do you have sufficient 'security' for the loan?
• Is the security for the finance acceptable to the bank?

Banks want to ensure your business can repay the finance. The business needs to have sufficient cashflow to pay expenses and debts comfortably as well as providing principals, e.g. salaries, overheads etc.

Your loan application needs to answer these questions:

• How much do you earn?
  • Is this amount sufficient to meet your repayments?
  • Debt obligations, living expenses, dependents.
• How stable are your earnings? Will you continue to be able to 'service' your debt/s?
• What is your 12-24 month projected cashflow?
• What are your plans should this change?

Banks will ask what personal investments you have planned for the business. Not only does injecting capital decrease the chance of default, but contributing personal assets also indicates that you are willing to take a personal risk for the sake of your business.

Your finance application needs to answer these questions:

• Are you in a strong financial position for the loan?
• Amount of your assets and your liabilities.
• Could you sell (liquidate) your assets if you need to reduce debt?
• How long would this take?

Contact our office if you require any assistance with getting your farm finance over the line.

The Money Edge | Bundaberg