Unlike hobby farm loans, agribusiness loans are generally assessed case by case. This is because of the diversity of the applications.
Agribusiness is an umbrella term. It covers everything from a small family-owned poultry farm to huge commercial farms.
Banks will take different factors into consideration when you apply. What are these factors and how can you improve your chances for approval?
How do lenders assess agribusiness loans?
Agribusiness loans are also called farm loans, farmer loans or agricultural loans. They can be taken out for various purposes. This includes updating equipment, buying agricultural property or kickstarting your agribusiness.
Banks carefully assess applications for agribusiness loans. They only lend to applicants that are Australian primary producers.
Your loan application and business must be strong in order to qualify. This means you’ll generally need a high income and a good credit rating.
Banks will also take other factors into account. For example, if you’re buying a farmland, you may not be approved if the farmland is in a remote location.
However, banks can be flexible with their policy. You will need to show that you’re a low risk business with high profitability.
Since there are no set guidelines, each loan is assessed case by case.
How much can I borrow?
If you’re buying a commercial farm, most banks lend a maximum of 60% of the land value.
If you’re not buying a farm, the Loan to Value Ratio (LVR) varies from lender to lender. Your borrowing power generally depends on the particular lender, loan product and the strength of your application.
Banks will have stricter lending criteria if you want high LVR agribusiness loans.
However, if you have livestock, particularly cattle, they can be lent against. For example, a $500,000 loan may be secured by 1,000 cows assessed at $500 each.
Please note that these assessments vary from lender to lender.
What do I need to prove my income?
Banks allow the use of existing as well as projected income. This means you can generally prove your business income using:
Please note that your statements and tax returns must be for the last two years. Lenders don’t accept older documents.
If you can’t prove sufficient income evidence, there are low doc business loans available. However, most banks will want to see significant equity before they can consider lending.
We have mortgage brokers that specialise in agribusiness loans. We can help you find a lender that can accept your application even if you can’t prove your income.
You can call us on 1300 889 743 or complete our free online assessment form to find out if you qualify.
What to consider before applying?
Agribusiness loans can be acquired without a hassle. However, that’s highly unlikely if you apply without making the proper considerations.
It’s recommended that you consider the following before applying for an agribusiness loan:
- Loan purpose: In most cases, banks will reject high LVR agribusiness loans with unreasonable loan purposes. For example, you can’t borrow $1,000,000 to simply meet seasonal expenses.
- Location and weather conditions: These need to be considered particularly when buying farmland or commercial farms. Different banks have different postcode restrictions. Generally, you won’t be approved if the farmland is in a remote location. Banks also dislike locations with erratic weather conditions. Unless you can prove that it won’t affect your business, you may not get approved.
- Planning and preparation: Lenders will want a detailed business plan and profit projections. They prefer borrowers who have thought things through and have sound market knowledge. Lenders also prefer borrowers who have experience in farming. However, you can employ someone with experience if you’re new to the business.
As with any mortgage, you’ll have to decide how much you need and how you’ll pay it off. It may also be a good idea to speak with your accountant before applying.
Agribusiness loans FAQs
What loan features are available?
Applying with the right lender is key since some lenders may not offer all of these features.
It should be noted that fees and charges are applicable on some features. Only get those features that you’re planning on using. This way you can avoid paying more than you need to.
Can I get an agribusiness line of credit?
Yes, an agribusiness line of credit (LOC) is available and this credit facility allows you to bridge the gap in your cash flow so you can get on with running your farm.
If you want to learn more about this, please check out our agribusiness line of credit page.
Can I fix my rate on an agribusiness loan?
Most lenders can allow you to fix your interest rate for up to five years. However, you may be able to negotiate a longer term on application.
Don’t fix your interest rate if you’re planning to:
- Sell the farmland or your agribusiness equipment.
- Make large lump sum repayments.
- Switch lenders or shop for better agribusiness loans anytime soon.
Our mortgage brokers can quickly find and compare the best fixed interest rates on offer.
You can discuss your situation and loan needs with one of our brokers on 1300 889 743. You can also complete our free online assessment form and one of our mortgage brokers will contact you instead.