Farmers Urged To Prepare Requests For Loans

Sydney Morning Herald

Tuesday June 23, 1992

By BILL THOMPSON

FARMERS have had more than their fair share of battles with banks over recent years, with the fight often centred on the need for more finance.

In many cases farmers have come off second best, not because the bank has been unwilling to lend but because the farmer has not prepared his case well enough.

The first step before applying for finance, be it from a bank or any other lender, is to be aware of the requirements laid down by various financial institutions.

These include:

1. Equity requirements. Virtually all lenders have rules which mean they won't lend more than a set percentage of the total value of the farmlands of the farmer. It is no point trying to get more than this set amount.

2. Cash flow requirements, which is the income the institution wants a farmer to have in order to meet interest payments.

3. Security requirements. As it implies, this is simply the various forms of assets a lender will accept as security for the loan.

Unless you check on these basic aspects of an institution's lending policy before applying for a loan you will almost certainly reduce your chance of success.

Farmers needing help in loan applications can take advantage of the Rural Assistance Farm Advisory Grant to pay a farm consultant, who specialises in loan applications, to prepare the necessary documentation and enhance an application.

For example it can be an advantage to utilise the services of a consultant who has experience with the Primary Industry Bank of Australia (PIBA) or the Commonwealth Development Bank (CDB).

Farmers should:

1. Approach at least two banks to obtain quotes for financial services.

2. Contact PIBA which will now advance sums of at least $100,000 (previously they advanced a minimum of only $250,000). Members of the NSW Farmers Association receive discounts on establishment fees from PIBA, which can be contacted by ringing (008) 22 2275.

3. Approach the CDB to find out whether it can provide any financial services

4. Make use of organisations such as Moneygram. For a fee of approximately $50 you can contact the Moneygram service (telephone (02) 43 8663) and it will obtain at least five quotes from financial institutions.

5. Get help from the NSW Farmers Association Financial Services Section(telephone (02) 251 1700, and ask for Christine Stewart).

6. Check with the Agribusiness section of the Farmers Bank.

7. Refer to publications such as the NSW Department of Agriculture's Ag Notes. The topics covered by this include sources of rural finance in NSW, financing farm machinery purchases, obtaining farm finance and the effective cost of farm finance.

The key criterion for borrowing is the ability to repay. It is important for farmers to prepare cash flow budgets using conservative income and expenditure estimates when considering additional borrowing. Farmers should contact their accountants and/or farm consultants to assist with the preparation of cash flows.

When applying for loan finance it is important to have up-to-date information.

Many farmers do not obtain financial information until at least eight months after the end of the financial year. Often they do not gather their financial information or obtain balance sheets from their accountants until at least the January or February following the end of the financial year.

This results in farmers often not being aware of how much their situation has deteriorated. Sometimes their debt situation can deteriorate by at least$100,000 over a year. Overdraft limits may be reached in January or February, with no facilities being available for the meeting of interest bills for a cropping program.

To ensure up-to-date information is available farmers, together with their accountants, should ensure that the farmer operates an up-to-date cash book and/or is organised through a farm secretary or farm consultant, in conjunction with the accountant, to have a quarterly financial review.