Can I borrow up to 100% of the costs?
With experience and a good business plan under your belt, yes, you may be able to qualify for a 100% turf farm loan.
It’s an industry that has had to weather water shortages and changes in consumer demand so getting approved comes down to presenting a strong business case.
How much can I borrow?
- Freehold: Borrow up to 60-70% of the property value.
- Business (leasehold): Borrow up to 50% of the business value.
- Borrow up to 100%: With a residential property as security or a guarantor.
- Interest rate discounts vary depending on the strength of your case and your security.
- Agribusiness loans are available.
- You’ll need to provide a business plan and cash flow projection for the business.
- Yearly business reviews are typical but can be avoided if you have good security and a small exposure limit.
- Low doc options are not available.
- Loans over $5,000,000 are assessed on a case by case basis.
Most lenders are conservative when it comes to turf farm loans but we have strong relationships with the key decision makers at banks that can help.
Discover if you qualify for a sod farm loan by calling 1300 889 743 or by completing our online enquiry form today.
Speak to a turf farm loan specialist
Turf farm loan applications are typically assessed at the business banker level meaning that you’ll deal with the relationship manager that lives in the location you’re looking to buy.
These business bankers know the local economy, the demand for turf farms, and they have a good handle on the local climate and weather patterns.
They don’t like taking on unnecessary risk and like to see that they’re dealing with a farmer that has the skills and capital to stay profitable.
We can help present a strong case to the right business banker!
By negotiating on your behalf, we can put you in a position where:
- You can borrow up to the maximum Loan to Value Ratio (LVR).
- You can qualify for discounted commercial interest rates.
- You can qualify for other business finance including an agribusiness line of credit and equipment finance.
Please call 1300 889 743 or fill in our free assessment form today.
How do I prepare for my application?
Before applying for a loan or speaking with your mortgage broker, you should ask yourself whether you have the skills and experience to buy a turf farm.
There is no hard and fast rule when it comes to business loans but most banks like to see that you have around 3-5 years experience in a managerial position in the same line of work.
What if I don’t have the experience?
You don’t necessarily need years of farming experience as long as you can mitigate the business risk.
It’s important to speak with an accountant and develop a strong business plan. It should detail:
- Your cash flow projections and profit forecasting.
- Marketing strategy.
- Who will be managing the turf farm and what staff you will have on board.
To further prepare, get your last 2-3 years financials together including personal and business financials if you’re self-employed.
Some banks may only require 1 years worth of financials but it’s just good to have substantial income evidence in case they ask for it.
What can I use as security?
The turf farm
The bank will take a charge over the land and determine its valued based on its size, location and purpose.
They will also take a charge over some of the equipment and other assets as well as improvements made to the farm. This includes:
- Water pumps.
- Steel frame machinery and tractors.
- Fertigation and dosing units.
- Any other buildings on the land including residential property.
- Water licences/allocation and pumping rights.
That’s great because it means less upfront capital and more cash flow in your pocket.
To complete the costs of the purchase, you can either come up with a large deposit or you can use existing equity in a residential property you own.
This can either be your own home or an investment property.
Alternatively, you can ask your parents or a close relative to act as a guarantor for your loan.
In this way, you can get a 30-year term for your turf farm loan and much more competitive interest rates.
You don’t have to fully secure your loan!
Some lenders don’t require you to fully secure your loan.
Typically, 60% of the loan will be secured against the property but the other 40% can essentially be lent against your worth as a borrower. This only available with a couple of lenders.
To do this, you need to be in a strong financial position and have a strong business plan.
Bear in mind that unsecured turf farm loans come with higher interest rates.
Water licences can be a particularly expensive upfront capital cost.
Depending on your state and local council, you can easily spend thousands of dollars for a 50ha block of land.
The average amount of water applied in Australia is 6.5 megalitres per hectare per annum so for a 50ha turf farm you’d need around 325 megalitres of water per year.
You should check out the Bureau of Meteorology’s Water Market Information page for information on water permit costs and application fees.
How are turf farms valued?
Banks use specialist agricultural valuers when valuing farmland.
When coming up with their valuation figure, the main thing that they’re concerned about is comparable sales and whether the land is fit for its intended purpose.
Valuers generally look at the last 6-12 months sales but may use an even larger range since these properties are usually tightly-held.
In relation to location, the bank will want to know that it supports your intended agricultural purpose.
That means that the zoning and local climate supports turf production and there is quality soil and substantial loam deposits to help support growth.
Unprecedented weather patterns and poor rainfall have hindered grass production across much of rural Australia for more than a decade.
On top of that, banks are considerably wary of flood-zoned and bushfire prone properties and this can weaken the final valuation.
Some of our lenders rank agricultural land on a scale of A to F.
If, for example, your turf farm is classed as category D, your LVR could be limited to as much as 60%.
Without a residential property as security, you’ll likely be hit with a significant interest rate.
One common strategy if for you to sign up for 2-3 years of interest only repayments.
In that time, the land value will have hopefully increased.
After the 2-3 year interest only period, we can refinance your turf farm loan to a better interest rate on a longer term.
How is the business valued?
The bank will usually ask the current vendors for their 2-3 years financials to show that they’ve been running a profitable turf farm business.
If you’re buying from a distressed seller, your business plan needs to reflect how you plan to turn the farm around.
Bank appetite for agricultural land changes on a regular basis but much of the above concerns can be mitigated with a strong business plan and speaking with the right relationship manager.
Presenting a strong case is key so speak with one of our mortgage brokers about your plans.
Call 1300 889 743 or fill in our free assessment form today.
What if I’m a foreign investor?
As of 1 December 2015, government laws now require foreign persons who own, or have an interest in, Australian agricultural land to notify the Australian Taxation Office (ATO) of their interest.
This has been implemented under the register of Foreign Ownership of Agricultural Land Act 2015.
These requirements are for foreign investors who:
- Have an interest in agricultural land at 1 July 2015 or acquire an interest or change that interest after that date.
- Plan to purchase farmland worth $15 million or more.
The threshold is cumulative!
FIRB will take into account the value of any agricultural land that you currently own (or have an interest in).
For example, if you previously acquired agricultural land valued at $9 million, you wouldn’t have been required to notify FIRB.
For more information, please refer to the FIRB website.
Make sure you have vegetation planted at various points on the land to act as a buffer between the farm and waterways.
You also need to prevent fertiliser and chemicals from entering surface and subsurface water.
Such fertilisers includes manure and animal litter, which should be stored on bunded concrete slabs to prevent the contamination of runoff water.
Dams may also be required to prevent run-off.
Under the Environment Protection and Biodiversity Conservation Act 1999, farmers undertaking new farm activities should be aware of:
- Nationally threatened and migratory species.
- Nationally threatened ecological communities.
- Wetlands of international importance.
- World and national heritage properties.
If you’re planning to undertake major changes to the land like land clearing, check first by calling the Department of the Environment on 1800 110 395.
What are some of the threats to turf farm success?
The single biggest threat to running a successful turf or sod farm is climate change.
Specifically, dwindling rainfall has resulted in drought in many turf farm growing hubs across Australia.
This has resulted in higher production costs as farmers use new methods to find underground watercourses for irrigation.
As a result, a lot of production has shifted to heartier grass types like buffalo, couch and zoysia.
Turf Australia, the national turf industry body, is investing heavily into research and development to come up with better farming techniques to combat the harsh Australian summer and changing weather patterns.
You may want to become a member to get a better insight into these developments and sharpen your farming skills for the future.
Changing consumer demand
Firstly, consumers just aren’t less willing to cough up big bucks for instant turf due to higher costs of living.
Secondly, more and more Australians are choosing to buy smaller houses with small backyards or high density, inner density units.
The consumer demand just isn’t there as it once was.
Turf farms are unique to other farming properties because they are often located in semi-rural areas close to newly-developed suburbs.
With population growth pushing more of these estates into rural locations, turf farmers often have to deal with encroachment on their farming activities.
It’s not uncommon to receive complaints about noise and dust when working your land.
You may want to consider dedicating a buffer zone around the property in order to avoid some of the disruption to your business.
Of course, there is a silver lining because simply owning these properties may be an investment in itself.
You may be able to make a substantial capital gain by taking advantage of zoning changes in the near future.
This is an example of land banking.
What type of turf can I produce in Australia?
- Green couch.
- Tropika blue couch.
- Sweet smother.
- Reinforced turf.
The type and volume of turf will depend on the contracts currently in place when you purchase the turf farm or what markets you’d like to tap into.
Turf is sold to many different retail and commercial markets including:
- Landscaping companies.
- Home builders.
- Golf courses.
- Bowling greens.
- Wicket and pitches.
- Racing clubs.
- Institutional and recreational playing fields.
Golden tips for buying a turf farm
It’s crucial that the land has an abundant water supply including rivers, underground channels and watercourses.
Going hand to hand with good irrigation techniques is easy access to a reserve of river loam soils.
Loam is considered ideal for gardening and agricultural uses because it retains nutrients well and retains water while still allowing excess water to drain away.
In saying that, organic amendments can be added to improve water-holding capacity and turf strength at harvest.
Although it can vary depending on your state and the local climate, pH levels anywhere between 6.0-6.5 is a good benchmark.
Most turf cannot survive immense flooding.
Check for flood mapping and historical records with the local council or state department of agriculture.
Forst won’t necessarily stop production but it can slow it down, increasing turnaround times and, ultimately, profitability.
Again, you should ask the local agricultural department for historical records so you can make an informed decision on the property and build this into your contingency plan.
Check for weeds on the site including nut grass and giant rat’s tail grass.
Depending on the extent of the problem, you may make it a condition of sale that the owner make improvements to the land.
Above all, you shouldn’t assume that the vendor followed best practice when operating their turf farm.
Do your research on the local environment and you may identify better irrigation methods by using the lay of the land, using better soil and fertiliser, and applying a better water management system that’s tailored to the type of sod you’re producing.
Do you need a turf farm loan?
Please call us on 1300 889 743 or complete our free assessment form to discover if you qualify for a turf farm loan.