The short-term cash flow solution for seasonal income
Being a farmer is tough and whether you’re looking to rapidly expand your agribusiness or you’re just trying to stay in the black, cash flow is king.
Seasonal income affects many types of businesses but it affects agribusinesses in particular because profitability is largely determined by the weather and commodity prices rather than holiday shopping sales.
An agribusiness line of credit (LOC) is credit facility that allows you to bridge the gap in your cash flow so you can get on with running your farm.
How much can you borrow?
- You can borrow anywhere between 60-70% of the value of the agribusiness and farmland in order to secure the line of credit.
- By using residential property as security, you can actually borrow up to 80% of the property value.
- Other security: Some lenders may accept a combination of residential, commercial property and business assets as security for the line of credit.
- Interest rate: Variable rate only using the 30, 60, 90 or 180-day bank bill swap rate plus a margin. Choose to have interest charged at intervals that best suits your business cycle!
- Capitalised interest: For up to 2 years with some lenders.
- Loan term: Unlimited revolving facility.
- Minimum LOC limit: Usually $10,000.
- Max LOC limit: There is no limit! As long as you have the equity and can show that you can afford the LOC, you can borrow what you need.
- Repayments: No fixed or minimum repayment requirements, freeing up your cash flow so you can grow your business.
Do you need an agribusiness line of credit?
Call 1300 889 743 or complete this free assessment form to speak with one of our experienced mortgage brokers about your farm finance needs.
How do I qualify?
Generally speaking, the only requirement is that you have sufficient equity in your property to borrow the amount you need for the agribusiness line of credit.
That means that your personal income is enough to cover the principal and interest payments on the LOC as well as any current debt facilities that you may currently have including your home loan or farm loan.
Do work this out, the lender will generally ask for your latest personal tax return as well as your last two years’ business financials.
Although it’s not always a requirement, the amount that you’re looking to borrow will sometimes prompt lenders to ask what you intend to use the money for.
As long as you can show that it’s for plugging up your cash flow due to a trough in your seasonal income, you should be fine.
Sometimes unnatural weather patterns or pests can affect the type of work you do on your farm and the produce and cattle that you produce so it’s important to line yourself up with a lender that understands the agribusiness industry and takes a common sense approach.
That’s where a specialist mortgage broker comes in!
How can we help?
A number of our mortgage brokers are specialists in the areas commercial finance including farm and agribusiness loans.
They have many years of experience working with landowners from many different agribusiness industries, including producers of:
- Grains and oilseeds
We have strong relationships with the key decision makers at a number of different major banks and lenders.
What this means for you is that you can borrow up to maximum Loan to Value Ratio (LVR) for your line of credit facility and qualify for sharp interest rates.
Complete our free assessment form and discover why we’re experts in agribusiness finance.
How does an LOC actually work?
The LOC is an “evergreen” facility or revolving loan meaning that it essentially acts like one giant credit card.
As mentioned above, the line of credit is secured against a residential or commercial or business asset unlike an overdraft facility, which is unsecured.
Depending on your security and your business needs, the bank will approve your credit limit and an interest rate will apply each time you draw down from the facility.
What are the benefits?
The interest rate
The interest rate itself will be slightly higher than the interest rate of a standard business loan but it’s also a lot less than a credit draft or overdraft facility since you’re securing the facility with a property.
You only pay interest on the amount you use!
That means you could essentially not use the facility for 8 months and pay no interest.
As long as you stay within your LOC limit, you generally won’t have to pay back any of the principal amount.
Drawdown when you need to
There are rarely average yields for farmers and seasonal income can fluctuate drastically.
For example, the harvest time for fruit and vegetables like apples and tomatoes is January to April in Victoria.
Harvest time for wheat, on the other hand, is anywhere between mid-November all the way to January.
So even if you’re diversifying the type of produce that you’re growing on your farm, you’re usually going to have some peaks and troughs in your income.
The beauty of a line of credit facility is that it’s “revolving” so you can draw down as you choose and won’t need bank approval every time you do so.
Sustain your business and even your personal income so you can get on with keeping your farm in working order and ready for next season.
No set term
You simply have to make sure that you keep meeting your interest payments.
You can avoid annual reviews!
It’s great when banks keep their nose out of your business!
You can limit their business reviews to every 5 years as long as you’ve been using the facility on a regular basis and have been making your interest payments on time.
However, if you’ve missed a couple of repayments or you’ve only used $20,000 on a $200,000 line of credit, for instance, the bank may use those unused funds and invest it somewhere else.
They also ask you to pay back some of the principal.
Do you need equipment finance?
An agribusiness line of credit is a short-term cash flow solution but if you need farming equipment and want to preserve your working capital then equipment finance may be what you need.
Having the right vehicles and plant machinery is just as crucial to your farm’s growth and sustainability as cash flow.
Call us on 1300 889 743 and we can help you put together a strong case with the right lender so you can finance the purchase of everything from tractors and harvesters to machinery for your workshop.
We also do trade finance!
As agribusiness specialists, we understand that exporting and importing goods and supplies is not always a straightforward transaction.
If you’re exporting produce or cattle, you’d naturally want to be paid as soon as you send off your shipment.
Similarly, if you’re importing machinery for your dairy farm or feeds for your livestock, you’d want to hold off payment for as long as possible to maintain your cash flow.
Trade finance is a particularly great solution if you’re involved in international importing and exporting and we know lenders that can help.
Do you qualify for an agribusiness line of credit?
Call us on 1300 889 743 or complete our free assessment form and we can help you with your agribusiness finance needs.