27 Oct Advice to young farmers from decorated veterans in Finance
Communicate your ambitions
One of the most important things for a young person setting out in the rural industry is to express their passion for the industry and state their goals to their community, family, friends and colleagues.
It is important at any stage in life but especially when you’re younger to let people within your network and rural community know what your ambitions are. In our experience, older generations are receptive to young people wanting to come into the industry, but if they don’t know what you want to do, then they’re not going to put opportunities in front of you.
Whether you’re at the races, at the pub – wherever you are – if you see one of your local farmers, interact and let them know what you’re trying to achieve in life. You’ll be surprised at the opportunities that will be presented to you.
It is important for young people to keep themselves educated through industry workshops on topics ranging from finance to the practical aspects of farming. As well as the intrinsic benefit of learning the skills, banks take note of a farmer’s management abilities when considering loan applications.
People believe that the banks credit assessment comes down to security and cash flow, but your management skills are key to lending. Up to 30 per cent of the credit assessment by some banks includes what they perceive to be your financial and practical management skills.
Land purchase options
It is important to consider all the finance options for getting into agriculture, including agistment, leasing, share farming, land purchase, and joint ventures. Succession planning is the obvious way for those whose family are already in the industry.
One of the biggest issues for young people in agriculture is getting a large enough deposit to purchase land. With banks typically lending 60–70 per cent of a property’s value, where do you find the other 30–40 per cent?
Quite often there are options around vendor finance (i.e. the property seller leaving money in the transaction). Vendors are increasingly open to receiving some cash up front and then the balance over a number of years. With term deposit rates at about 1 per cent at the moment, a buyer offering an interest rate of say 3-4 per cent is quite attractive to a vendor.
Another option for land purchase is through family support, such as your parents or a relative putting their property up as security. They might simply be the guarantor for you (the loan is in your name and secured by the relatives property). Alternatively, the relative borrows the money in their name because they have the credit history with the bank. They obtain a separate loan in their name against their property, and you pay the principal and interest over time, as well as any costs to set the loan up.
Most leasing and share farming opportunities arise through contact with somebody you already know, as not many are advertised. Joint ventures, partnership and equity partners are relatively rare.
The young people that are most successful at getting finance are those with a realistic timeframe and have worked out exactly what they want to do (i.e. have a business plan). The business plan describes, with timelines, how you will accomplish your goals, and should include a projected cash flow. Consider all the aspects of getting into agriculture such as purchase costs (including stamp duty). Look at what infrastructure (eg yards, sheds, fencing) you require, as well as what machinery and livestock need to be purchased. Finally, ensure you have an idea of the working capital you will need to keep the property going in the first few years.
When applying to the bank for a loan, it is critical that the presentation and its timing are right. Bank managers don’t have time to look at poorly presented applications. There are several items of financial information that a bank will need to see to consider a loan application. These include your background; synopsis of the transaction; the loan amounts, loan types and terms required; assets and liabilities; security; equity; cash flow forecasts; and information on the historical financial and production performance of the property.