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Last updated 31 March 2021
Australian Farm Funding Guide 2021
Farming is a family affair. According to the Australian Government’s Department of Agriculture and Water Resources (ABARES), 95% of Australian farms are family owned and operated. The desire to keep the farm’s ownership within the family, limits the sources of funds available for expansion, investment or equipment to funding types that retain the family’s control of the business.

In addition to funding restrictions, small to medium-sized Australian farms operate with tight margins and returns on capital of only 2-3% excluding capital appreciation. With such narrow margins, efficiency in all aspects of operations is key and it is important to structure any debt taken-on efficiently and economically. This guide discusses the main types of agrifinance available to farms including bank borrowings, equipment finance and government-subsidised loans.
Types of Loans for Agriculture
Agriculture Line of Credit / Agriculture Overdraft Facility
Farming is a highly seasonal and cyclical business and farms are especially vulnerable to unexpected and disruptive events including droughts and floods. Prices of inputs such as seeds and fertilizer fluctuate as do the prices of the commodities sold. Maintaining an agriculture line of credit or overdraft facility can be extremely helpful to ensure that you are able to preserve adequate working capital through any unexpected downturns or through periods of reduced cash flows. After all, inadequate working capital and/or cash flows is the primary reason for default and bankruptcy for farmers.

One of the many advantages of a lines of credit is its flexibility in that you can draw down on money immediately without even speaking to a banker. Many lenders also offer lines of credit specifically tailored to farms and agricultural businesses and provide flexible payment schedules that you can align with your business’s income schedule.

Lenders will accept collateral in the form of residential property or farm land and many banks will also allow you to use a term deposit as collateral. Other possible forms of collateral for an agriculture line of credit include livestock, farm equipment and machinery or other farm assets.

An overdraft facility is simply a line of credit directly linked to an existing business bank account. The credit becomes available once all the funds in the account have been used. It is important to understand what fees and interest costs are associated with using an overdraft facility.

Learn more about business line of credit.
Agriculture Term Loan
If you are looking for long term capital to invest in growing or improving your farm through land purchases or major improvement works, building production facilities etc., a term loan may be an excellent option.

Agriculture term loans are available with terms from 5 to 20 years and allow you to borrow anything from $15k to $2 million or more. Most lenders will allow you to structure repayments in a way that is most suitable for your farm’s cash flow.

Common types of collateral accepted for agriculture term loans include residential property or land. Some lenders will also accept water, livestock or crops as collateral for agricultural loans.

Read more about secured business loans.
Livestock Finance
Livestock finance provides funding to purchase livestock, re-establish stock numbers, invest in breeding or cover veterinary expenses. Livestock loans start at around $30,000 and have a term of 1 to 3 years. Interest rates can often be capitalized allowing you to repay the loan and interest when you sell or refinance the livestock. Collateral for livestock loans is equity in the

Speak to one of our brokers to learn more about livestock finance.
Low Doc Loans for Farms
Low Doc loans are available primarily to hobby farms but some lenders will also extend this type of loan to commercial farms. Low doc loans involve much lower requirements in terms of proof of income and assets compared to regular loans. However due to the inherently higher risk that low doc loans pose to lenders, collateral is typically required in the form of a 1st mortgage and interest rates are high.
Farm Equipment Finance
One of the most common need for agricultural businesses is equipment finance. See an in-depth discussion on the different forms of farm equipment finance below.
Why Use Equipment Finance?
Every farmer will tell you that owning the right farm machinery and equipment is key to keeping a farm productive and therefore profitable in both the near and longer term.

Technology has transformed agriculture and brought huge improvements in efficiency and productivity. It has also made farming a much more capital-intensive industry and sizeable investments are required to keep the equipment and machinery stable up to date and functioning well. Over 55% of Australian farms had net additions to their farming equipment in the 2018 financial year according to the ABARES Australian Agricultural and Grazing Industries Survey. In fact, spending on farm equipment and infrastructure has grown by 2.8% per year for the past 20 years.

The list of machinery and equipment necessary to run a farm is extensive and includes:
  • Tractors
  • Combines
  • Ploughs
  • Trailers
  • Harvesters
  • Generators
  • Conveyor belts
  • Grain carts
  • Seeders
  • Fertilizer sprayers
  • Bale feeders
  • Cattle guards
  • Cattle crushers
  • Livestock feeders
  • Milking equipment
And more depending on the type of agriculture you practice.
Types of Farm Equipment Finance
Farm Equipment Finance Lease
In a finance lease agreement, the lender purchases the equipment and leases it to you over a pre-agreed period. While you may have the option to purchase the machine at the end of the lease period, you are under no obligation to do so. Farm machinery manufacturers, dealers and finance companies offer equipment lease programs. Lease terms are usually 1 to 5 years and repayment frequency can usually be tailored to suit your farm’s cash flow profile. Lease payments are reported as operating costs and are fully tax deductible.

Learn more about farm equipment finance leasing.
Hire Purchase Contracts for Farm Equipment
Hire purchase agreements are based on the idea that you buy the equipment from the finance company over time through progressive installments. By the end of the 1 to 5-year term, you will own the equipment outright. As a hire purchase contract is viewed as a conditional purchase for tax purposes, only the interest portion of the payments is tax deductible.

Learn more about hire purchase finance.
Chattel Mortgage for Farm Equipment
A chattel mortgage is a loan given that is secured against a specific piece of machinery or equipment. The user of the farm equipment owns it from the outset and will continue to own it at the end of the finance term. As with a hire purchase agreement, only the interest portion of the payments is tax deductible.

Learn more about chattel mortgages.
Non-finance Options for Farm Equipment Purchases
The prospect of financing farm machinery may not be attractive to you. Perhaps you have a small hobby farm that cannot justify the investment or maybe the future financial outlook of your farm is uncertain and you don’t want to take on any additional debt obligations. In this case, there are a number of less capital-intensive ways to access farm equipment and machinery.

Some non-finance options for accessing farm machinery are discussed below.
Purchase Used Machinery
If the upfront cost of buying equipment feels insurmountable, one option is buying used equipment. Advantages of second hand equipment will be the lower upfront cost and faster depreciation of the asset. On the other hand, there is always a risk of higher maintenance expenses. The large agricultural equipment companies such as John Deere or Caterpillar have used equipment resale divisions. There are also a multitude of agriculture equipment brokers and specialised equipment resale pages. Second hand farm machinery and machinery parts can even be found on Gumtree.
Hire a Contractor
If your farm is small and the particular task you need assistance with occurs infrequently, it may make more financial sense to hire a contractor to come in and do the work. The costs of buying and maintaining the equipment rests on the contractor who will usually run large and highly efficient machinery. The cost of contracting is also deductible for tax purposes.
Rent the Necessary Machinery
If you have the skills to run the machinery needed and want to avoid paying the wages and overhead involved in contracting, most rural towns will have machinery rental companies such as Kennards Hire. Hiring agricultural machinery allows you to complete the tasks needed without the longer-term concerns of maintenance and storage.
Share Farming
If you want to fully avoid the risks and headache of managing a farm and its machinery, livestock and labour, share farming is an option. In share farming, also known as farm profit sharing, another farmer to will farm your land in return for a percentage of profits.
Purchase Farm Equipment Through a Syndicate or Reciprocal Borrowing Structure
If you are surrounded by other similar small farms, one possibility is to set up a syndicate and to purchase the necessary equipment through the syndicate. This structure necessitates an ability to agree on fair scheduling and maintenance responsibilities etc. Similar to syndicating, farmers can also set up a reciprocal borrowing schedule where machines are shared across multiple farms.
Australian Government Assisted Farm Investment Loans
The Australian government provides loans through the Regional Investment Corporation (RIC) to support farms under financial pressure. As of August 2018, there is $500 million available each financial year for farm investment loans.

There are two types of loans, Drought Loans and Farm Investment Loans. Drought Loans are specifically available to help farms struggling to survive through a drought period. Farm Investment Loans are more generally available to help ensure farm diversity and to strengthen the farming sector.
Who Can Apply for Farm Investment Loans?
The conditions for who can apply for a farm investment loan are very specific. Farm loans are available to farms who can satisfy the following conditions:
  • Farms mainly supplying products for sale interstate or outside of Australia.
  • Farms in need of a loan due to circumstances outside of their control (e.g. drought, disease, pest or weed infestation, unexpected biosecurity constraints, markets shutting, etc.).
  • Farms that can show that they are financially viable long term and able to service the interest on their loans while providing an adequate standard of living for the owners and employees.
  • Farms where at least one owner is an Australian citizen or permanent resident, has operated the farm for at least 3 years, and spends the majority of their time working on farm-related tasks and the farm generates the majority of their income.
In addition to the conditions listed above, the Corporation will perform independent investigations including background and credit history checks. However as the primary goal of this lending scheme is to support Australian farms, borrowers who can supply credible security for loans may still qualify despite a less than stellar credit history.
Qualifying Uses of Farm Investment Loans
When applying for a farm investment loan, you will need to indicate how you intend to use the funds borrowed. Permitted uses of funds include:
  • Refinancing existing commercial or government-funded debt.
  • To fund farm operating expenses such as wages, farm rent, bills, purchase fuel or fodder, transport livestock, etc.
  • Capital expenditure to improve farm productivity (upgrade machinery, purchase breeding stock, improve water access, etc.) or improve disaster preparedness.
  • Note that farm investment loans are only provided to purchase land in exceptional cases.
Key Terms of Farm Investment Loans
The terms of farm investment loans are generally very favourable to the borrower. Farm investment loans are low cost, carry no fees and allow early repayment and flexible repayment terms. Farmers should always consider whether they are eligible for a concessional farm investment loan before approaching commercial lenders.

The Key loan terms are as follows:
  • Loan size up to $2 million.
  • Loan term is 10 years.
  • The interest rate is currently 3.58% and is adjusted following changes in the Commonwealth 10-year bond rate.
  • The initial 5 years repayments are interest only, in the subsequent 5 years repayments are principal and interest. Any loan balance remaining at the end of the 5 years can be refinanced with a commercial lender.
  • A minimum of 50% of total farm debt must remain with a commercial lender
  • No additional fees including application, settlement or early repayment fees.
Source: The Australian Regional Investment Corporation’s website.
Types of Collateral Required for Farm Investment Loans
The primary form of collateral requested is land or other property assets. The RIC will also allow other forms of collateral such as livestock, water allocations, etc. on a case-by-case basis.
How to Apply for a Farm Investment Loan
Applicants for a farm investment loan need to fill in the application form as provided on the Regional Investment Corporation’s website. They also need to submit numerous supporting documents including:
  • Past 3 years’ financial statements
  • Past 3 years’ personal and business tax returns
  • Year to date results and cashflow budget for the rest of the year
  • Monthly cash flow predictions for next financial year and expected figures for a “normal” year
  • Australian Tax Office (ATO) integrated client account statement
  • Proof of eligibility and “financial need”
  • Certified copies of IDs and evidence of Australian citizenship or PR
  • Past 12 months bank statements of loans refinanced and transaction account statements of borrowers and guarantors
An advisor from can assist you in preparing the necessary documentation and supporting documents to successfully apply for a government concession farm investment loan. Contact us to discuss your needs.
Agriculture Risk Mitigation
Australian farmers face a high degree of production risk. According to ABARES data, the volatility of the agriculture industry over the past 40 years is almost double that of any other industry and over 3x higher than the average. It is therefore imperative for farmers to be sufficiently protected from everything from falling yields, rising input costs, unexpected weather patterns including droughts and hail to catastrophic events such as fires and floods.

Some of the risks inherent in farming can be mitigated through crop diversification, geographic diversification, modern irrigation and water supply systems and modern, efficient machinery. In addition to this, the appropriate use of trade finance, credit and insurance products should be utilized to help protect farms in the event of unexpected downturns or extreme events.
Trade Finance for Agricultural Products
Australian agriculture exported two thirds of its estimated $66bn worth of agriculture, fishery and forestry production in 2017-18 according to ABARES. As an export industry, farmers are exposed to the risks inherent in international trade in terms of counter-party risks as well as commodity and currency price fluctuations that can have a dramatic impact on earnings. Financial products such as export letters of credit or non-recourse export finance bills can be used to reduce counter-party risks. Furthermore, currency and commodity derivatives can shelter your business from price fluctuations and reduce the risks inherent in the capital markets.

Read more about trade finance.
Traditional Agriculture Insurance
Named risk insurance protects farmers against business and production disruptions due to specific and named risks. This can include fire, flood, hail, frost, disease or specific pests. For instance, stud stock insurance protects against the loss of a stud bull through accident, illness or death.

Other traditional agriculture insurance products include worker's compensation, home insurance and farm property insurance.
Index-based Agriculture Insurance Products
Index-based insurance products protect against yield risk by tracking the performance of a specific modelled index. Indexes can be based on weather patterns (e.g. rainfall, temperature, etc.) or a combination of climate factors and specific crop-related factors. Index-based insurance products’ payout depending on how actual outcomes perform relative to what the index forecasts.
In Conclusion
Farmers often operate in an environment of higher volatility and risk than your average business while simultaneously being limited in the forms of finance they can accept due to the nature of family-owned businesses. Whether you are looking to purchase land, livestock, machinery or equipment, to survive through a period of draught or extraordinary weather, or simply understand what options you have to reduce the risks inherent in your business, an experienced broker will work with you to understand your specific needs and lay out what options are available to you.
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