Planning to kick start your agricultural business on the outskirts of the city? Starting your own farming business or building your existing one takes time and resources. One of the best ways to drive your business in the direction that you want is through farming and machinery loans.
These loans can cover every agricultural endeavour – from small family-owned pig farms to multi-national commercial farms. Established farms have got the application process right down to a tee. Different lenders will have different approaches. But for those that are just starting out, it helps to have a little background of how the whole thing works before you dive right in. Here are some things you need to know about farming and machine loans.
What are farming and machinery loans for?
Farming and machinery loans can be taken out for purposes like equipment upgrading, agricultural property purchasing, agribusiness kickstarting, and many more.
How will lenders assess my application?
Most banks and lenders are stringent when it comes to assessing applications for farming loans. Most often, lenders will only lend to applicants that are considered Australian primary producers. These are individuals, partnerships, or trusts that undertake business in the plant or animal cultivation, fishing or pearling, and tree farming or felling sectors. Another quality that lenders check is a strong business position which is indicated by high income and good credit rating.
But not all lenders stick to these rules when assessing your loan application. There are no set guidelines, so no two lenders will have the same way of assessing an application. Many lenders nowadays are very flexible with their assessment policies to give a better chance to those who are just starting out. It all boils down to which lender you are working with and how reliable they are in the industry.
How much can I loan?
If you’re loaning for a commercial farm, most banks will lend up to 60% of the land value. But if you are not buying a farm, loan to value ratios can vary a lot depending on which lender you are working with. The amount you can loan will also depend on your borrowing power (which can be determined by the lender, loan product, and application strength.
You can also strike a secured farming loan. For instance, if you have, or are purchasing, farm equipment you can raise capital against, or fund the purchase, of that item. Do note that assessments for these secured loan deals will still vary from one lender to another. So, make sure you get the facts right before signing a contract with the lender of your choice.
What are the requirements needed to process my request?
One of the main things that lenders will need to assess your application is proof of income. You can prove your income by presenting one or more of the following documents, as requested by the lender:
– Bank statements
– Tax returns
– Cash flow projections
– ATO Portal
– BAS Statements
Each document that you present must be issued within the time requested by the lender, anything from the last 90 days up to 2 years. Otherwise, it will be rendered as expired which cannot be accepted by lenders. If sufficient income evidence cannot be presented, then you can always opt for low doc business loans options. These are agribusiness loans that require minimal documentation for application processing.
If you are having difficulties finding good loan deals near you, feel free to reach out to finance brokers that specialise in agribusiness loans. Even if you do not have enough documentation to prove your income, you may still qualify for a substantial farming loan.
Can I have a fixed-rate farming and machinery loan?
Fixed-rate farming loans are available for up to five years term in most lending firms. Though, there are also others that can offer fixed-rate loans that last for a longer time. You can apply for a longer term by negotiating with the lenders or having a broker do it for you.
Other things to consider:
Farming loans can be easily acquired with the right preparation and with the right guidance from good lending firms. But there are still a lot of things you need to keep in mind. The scope of consideration does not just end with the loan rate arrangement. Before you apply for a farming loan, be sure to take the following factors into account.
Not all lenders will do this but generally, loan applications with high loan to value ratio (LVR) and unreasonable loan purpose will be rejected. High LVRs are typically given the go-ahead only if the loan purpose is for something sustainable – investing in good machinery, hiring more talents, bringing in more livestock, etc.
But if you are asking for a loan of $1,000,000 for reasons like purchasing seasonal items like seeds, fertilizer gasoline, and others, then the chances of getting your application approved is very slim. So, make sure that the loan purpose you indicate is suitable and within reason to the loan amount that you are asking for.
The location of the farm that you wish to purchase also affects your loan approval. Postcode restrictions limit the buying of properties that are too remote or isolated. Locations with a reputation for bad weather and harsh environments are also not favourable in farming loans. Contact our friendly team to find out what restrictions you may face and how we might be able to help overcome them.
Lenders will appreciate a detailed business plan – indicating how you wish to spend the loan, how you will profit, how you plan to address possible issues, etc. The key is to pay attention to every detail of your plan. The more detailed, the better.
Borrowers with first-hand farming experience are also favoured better than those who don’t. However, if you are just starting out in the industry, you can also consult with a professional and have them back up your implementation plan.
Grow Your Agribusiness with Farming and Machinery Loans Today
We wish this article helped shed some light on farming and machinery loans. Applying for these loans is easy enough, but it will even be easier with the right lender’s help. So, head on over to Nu-Age Loans and find loan that is suitable for your business.
We also offer services in refinancing and financial planning. For smarter and more strategic wealth planning contact Nu-Age Loans.