09 Jun Funding Success Case Studies June – Case 2
Case Study 2: Agribusiness Lending
Loan (Limit): $7,250,000
Enterprise: Beef farming and agribusiness retail
Lender Type: Major Bank
Savings: 86 basis points OR $62,350 p.a. fully drawn
A long-term agribusiness client of a major bank incurred a significant liquidity squeeze for several years initially from the drought on the beef farming side and then an adverse COVID response on the farming retail side of the business. The duration of both took its toll both financially and emotionally. The bank had suggested that selling land would alleviate some of the issues at hand, but the clients were adamant that normalised conditions would return, and their future direction is expansion, not consolidation. The client has been on Principle reducing loans and a change of bank managers which added further pressure.
It was immediately apparent that the presentation to the bank needed to be a lot more sophisticated to work through the several issues endured by both the bank and the borrower. RSP recommended the inclusion of a professional agricultural agronomic consultant to prepare more detailed analysis on an enterprise-by-enterprise basis to get a better understanding of the income and expense drivers of the business. In addition, a restructuring of the current debt was required to alleviate the working capital position and to focus cash flow on rebuilding inventory (livestock and retail) to support the drought breaking event.
The bank found scope to extend facilities on interest only for another 12 months in a process to formally capture the improved FY21 financial performance whereby a recalibration of their credit risk rating will substantially improve. In addition, 0.86% was reduced from their rates saving the clients in excess of $60k per annum that can be reinvested back into their business to build profitability.