According to ABARES (the science & economics research division of the Department of Agriculture, Fisheries and Forestry) there were 87,800 agricultural businesses in 2019-20 that had an Estimated Value of Agricultural Operations (EVAO) of at least $40,000. There were 55,700 broadacre and dairy farm businesses and of these, 64% were livestock farms, 26% cropping farms and 10% dairy industry farms. Over the last 20 years, the size of the agricultural industry in Australia has grown (up from $70bn in 2001 to $75bn in 2021) but the number of agricultural businesses has fallen. Australian farmers manage significant risk and volatility and having the correct agricultural financing solutions in place can smooth over cash flow shortages and help farm-owners invest in the right technology to improve efficiencies. Given the number of agricultural businesses is consolidating, it’s also possible to use a farm loan to buy a farm or agricultural business.
Growth in agricultural productivity has been outstripping that of other sectors, primarily due to structural change and investment in technology. Having the finance to buy farming equipment remains one of the biggest barriers to launching a new farm or growing an established one – farm equipment financing is a vital tool for many agricultural businesses, in order to distribute the cost of equipment over time.
Global agricultural demand continues to grow strongly and around 72% of all agricultural production in Australia is exported, which also makes export finance an attractive option (more on this below). Rice, sugar, beef and lamb all see a high proportion of production exported overseas, predominantly to Asia, New Zealand and the US.
There are various factors which will influence the type of finance which is relevant to a particular agricultural business. The stage the business is at (there are even first time farmer loans available from the government), where and how the agricultural business makes sales and the reason a firm is seeking a loan, are just some of the many factors which will influence the most appropriate agricultural financing solution for them.
| Loan Type | Securities | Terms | Avg Loan Size | Estimated Interest Rate |
|---|---|---|---|---|
| Secured by Equipment, Unsecured, Line of Credit or AgriStarter | Farm or Farm Equipment | 1-7 years | $100,000 | 3.5% (AgriSTarter) -35% (Unsecured) |
Farm equipment loans are a type of secured loan which sees the farming equipment being purchased act as the collateral. The lender providing the farm equipment loan takes a charge over the equipment and has recourse over it should the borrower default on its finance arrangement.
Various structures are possible for farm equipment financing (all detailed in our dedicated equipment financing guide) which include both lease and asset purchase options.
In addition to the risk profile of the borrower, the quality and age of equipment can also influence the interest rate applied on a farm equipment loan. More niche farming equipment may also attract a higher interest rate as this could be more difficult for the lender to sell, in the event of a default. Farm equipment finance is possible on second-hand goods and can be used to buy, upgrade or replace existing equipment.
It’s possible to mortgage a farm (residential property + land) and any assets owned by the farm in order to secure a farm loan. A freehold will allow farmers to borrow at a higher LTV than leasehold.
If you’re looking to buy a farm then it’s important to consider all of the factors that will influence the price and likelihood of obtaining a mortgage. As well as its size, the quality of its buildings and its location will also play an important role in how much the farm is and whether it would be possible to get an agricultural property loan. Rural property finance is possible and farms based in rural areas, far away from the nearest city or town will usually be cheaper. If it’s a rundown farm that you plan to enhance, you’ll need to be able to demonstrate you have the cash at hand and a profitable agricultural business in order to do so.
Straightforward agricultural business loans (shorthand agribusiness loans) are either secured against property or farm asserts (as detailed above) or offered on an unsecured basis. For longer terms of 1-20 years, collateral will almost certainly be required, such as property or land, or specifically for agriculture lending, lenders may also consider livestock (known as livestock financing).
Unsecured farm loans will likely be no more than 1 or 2 months of revenue and are best used to cover short-term cash deficiencies.
Given the seasonality of most agricultural businesses and the external risks that may come in the form of things like disruptive weather patterns or bush fires, having an agriculture line of credit in place can be very useful. A line of credit is agreed upfront (then usually reviewed annually) and provides a pre-approved facility that borrowers can draw on at any time. No need to seek approval each time finance is required, simply access whatever capital is left on the line of credit. Once a drawdown has been repaid, those funds can then be accessed again should they be needed.
A line of credit can be both secured or unsecured. If secured, lenders will accept the same sort of collateral we’ve already mentioned – property, farm land, livestock, farm equipment and more. You don’t necessarily have to access funds online and most lenders provide businesses with the option of simply calling and requesting the amount of agri finance they would like to access.
A business overdraft is even more simple – as soon as funds in the account go below zero, the overdraft automatically kicks in.
Export finance lenders have a particular expertise in funding businesses who sell overseas. If an agricultural business exports, they have to be sure they can afford to produce the goods agreed in a contract and they also have to be sure they, in turn, will receive payment. Export finance can help to mitigate business risks, such as late payment or payment default. Export Finance Australia works with banks to provide finance for agricultural businesses who export, including a small business export loan.
The agristarter loan is a loan for farmers from government that’s offered in combination with the Regional Investment Corporation. It is not a government grant per se.
There are two types of AgriStarter loans:
First time farmer loans are just as they sound – they can be used as a loan to buy a farm that already exists or as a loan to buy agricultural land and build a farm from the ground up. Note, however, that in addition to this, first farmer loans can also be used by existing farmers if they are a lease or share farmer and wish to purchase, establish or develop a farm business.
Succession loans are relevant to agricultural businesses who are undertaking or have already recently undertaken succession planning.
It’s important to note that loans must be secured and these particular agribusiness loans from the government have to be used for specific business purposes. The first five years are interest only repayments, then five years’ principal and interest is due over a 10-year loan term. After 10 years, it’s possible to refinance any remaining balance with a commercial lender.
There are certain lenders that provide agribusiness financing who specifically advertise as having agricultural-specific policies and products.
In the majority of cases, finance is likely suitable from any Australian small business lender, but there might be instances when it’s important to have a lender that has uniquely tailored solutions for agribusinesses. Some of these can include:
The ability to use livestock or farm property as security, whilst maintaining ownership of your livestock.
Lenders with a history of providing agribusiness financing understand the seasonality flows of agriculture and are more likely to offer flexible repayment options that can help with seasonal cash flow. Paying more when revenue is coming in and less during quiet months.
In the case of farm equipment financing or secured agricultural property loans, lenders will provide longer repayment terms to match a longer life cycle and generally more expensive equipment / farm investment required.
The agricultural industry in Australia is growing but the number of Agribusinesses is consolidating. This provides opportunities for both agricultural businesses and agribusiness loans providers alike, however it also poses risks. There are a variety of agricultural financing solutions open to agricultural business but lenders will be well aware of how the industry is trending and the enhanced risks in the agricultural sector. For this reason, farm loans are normally always secured, with farm land or property acting as security. Or, in the case of farm equipment finance, the equipment itself being used as collateral. Given the uniqueness of the industry, it can pay to work with a lender that has experience in issuing agricultural business loans and can present flexible repayment options before you agree to take on agri finance.
