The discussion with your bank manager on the topic of interest rates often gets a bad rap when associated with agricultural businesses. A common comment from farmers that we hear is, “They only ring me when something is wrong!” However, this common misconception doesn’t do your banker’s justice. They are in fact an integral cog in your business network and have an important role to play in your farming business and as such should form a key part of your professional adviser team.

Understanding Your Current Interest Rates

When reviewing your interest rates its always important to do your research and find out where the current market is sitting. The first point of call we typically hear about is ‘Asking your Neighbour’ about how good their rate is and then asking other farmers you know well about their experience with current interest rates. These conversations will give you an initial indication of the range of rates out there. The second step normally involves seeking out professional input, gaining additional information or assistance from business/financial advisers, like ORM, to help narrow down what your banks should be offering you!

Collateral: Does your business have enough security to borrow against? Typically, there is other pre-existing owned farmland within your business, but it can also be other farm assets like a permanent water right and feedlot structures. Most banks will allow borrowing up to 50% equity and if the above ‘Cashflow’ requirement is met they may allow borrowings up to 70% equity.

Character: Are you always honest and transparent in your approach with your bank? It is important not to hide important upcoming matters like machinery purchases or land purchases, making sure you keep your bank in the loop regarding major financial matters that will happen within your business.