Agribusiness is a general term which covers everything from a small family-owned poultry farm to huge commercial farms.
Unlike hobby farm loans, agribusiness loans are generally assessed case by case. This is because of the diversity of the applications.
Banks will take different factors into consideration when you apply.
What are these factors and how can you improve your chances for approval?
Agribusiness loans are also called farm loans, farmer loans or agricultural loans. They can be taken out for various purposes, which include updating equipment, buying agricultural property or kick-starting your agribusiness.
Banks carefully assess applications for agribusiness loans and 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.
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 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.
- 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.
- Planning and preparation: Lenders will want a detailed business plan and profit projections. They prefer borrowers who have thought things through and have experience in farming. However, it is also possible if you were to employ someone with experience if you’re new to the business.