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#006 - How to Get an Extra $1M From the Bank (Without Getting Screwed) · Dollars In The Dirt

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What if you could unlock an extra million dollars in your borrowing capacity from
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the bank? Not by having a once-in-a-generation season, but
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by understanding one simple secret. Banks
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don't lend on loyalty, they lend on policy. Most farmers
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will walk into a bank and ask, how much will you lend me? And
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they get a conservative number based on a fraction of their true potential.
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The bank isn't going to show you how to maximise your position. They
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won't tell you that your tax structure is strangling your serviceability, or
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that their competitors have a policy that's perfect for your operation.
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They'll just give you their number, but there's a way to
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get a better number. Today, I'm going to show you how
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to find that extra million dollars. We'll cover the
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key loan drivers, the silent killers of your borrowing power, and
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how to present your business so the bank has no choice but
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to say yes. This isn't about selling your soul. It's about finally
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learning the rules of the game. Welcome to Dollars in the Dirt. I'm
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Brecon Curtis, and this is where we break down the finance side of farming so
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you can grow your operation, buy that next property, and build
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real wealth. Let's get into it. So first and foremost, you
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need to have a clear plan. How your business is positioned and presented
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makes a massive difference, especially in agriculture. We
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all know agriculture is complicated. We have varying
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seasons, varying geographical locations, varying
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commodities. Every property is different, and no two
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businesses are exactly the same. And that's why you
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have to have everything presented in a way that makes sense
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to the bank. Everything needs to be up to date. Your financials, your
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ATO commitments, your livestock numbers, and your valuations. Banks
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lend on policy and risk, not on history or loyalty. That's
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why it's really important to make sure that you're working with the
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bank that understands your business and not just a
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bank that you've been loyal to for years. Most of the time, it
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shouldn't be a no. It's like, if we can change this or
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do something else, then this is how we can do it. A bank manager
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isn't going to tell you that. By having a finance broker
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or someone that understands the rural business It's in your corner. It's
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really important to be able to paint your picture of your business, where
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you want to take it, and having a clear plan with your numbers, your budgets, your
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forecasts, and your livestock schedules to say,
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this is where my business is and this is where I want to take it. You also need
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to know who to talk to. If you get a banker that's not proactive or keen to
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do business with, it'll cost you a fortune. We see this all
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the time. People come to us and they say, well, I've spoken to my bank manager,
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but he didn't seem very interested in us buying
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the property next door or buying that property a couple hundred kilometers away
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that will help us with spreading our risk around geographical location and
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drought risk and that sort of thing. So if the bank manager's not
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keen to lend money or maybe they're, I've seen it all the time where
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they're close to retirement and they're not that interested in actually
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having to do the work to put the application together, You know, at
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the end of the day, the bank manager is still going to get paid his wages, whether he gives you the money or
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he doesn't. So you need to make sure that you're working with the
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right people that understand your business, understand where you
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want to take it and really invested in making sure they get the
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right outcome for you and helping you grow your business. You also need to
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have it mapped out before you apply in your own mind. Making sure
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that when you go and have that meeting with your finance broker or your bank manager,
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that you understand where you want to take your business. You've actually
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sat down, done the numbers, shown that you can make it work on paper, that
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your business can handle the extra debt, the income that you're going to generate from
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that business, what it's going to look like. If you're still relying on your bank manager
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to actually put all that together for you, that's going to
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make it harder for them and harder for you to know where
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you stand because they're not going to say, you know, if we, if we change the
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way that these numbers look in this way, it's going to give you the ability
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to borrow a bit more money. They're not allowed to do that. So making
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sure that you've mapped it out in your own head, that you can clearly articulate your
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plan and where your business is heading and being able to present
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that in a professional way and not scrambling You know, when an opportunity arises,
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we see it all the time, you know, people come in and they say, you
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know, the next door neighbor's property's come for sale and how
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can you help me get the money together? But their financials aren't sorted, their
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ATO's up, not up to date. They don't know what their current livestock numbers are.
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They don't know what the current valuation is on their property. You need to make sure
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that you're prepared to make the most of those opportunities. as soon as they
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arise. But if we spend two weeks trying to get all the information together, it
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will make it hard to be able to act quickly and to be able to make the most of the opportunities and
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make them happen quickly. I'm going to get a bit technical here, but it's
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really important that we understand the key loan drivers. And we
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talk about the three Cs of credit whenever you go for a loan, and
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that's character, capacity, and collateral. And if
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you understand those key drivers when you go and apply for a loan, It
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gives you the best opportunity to do that. Good tax advice often can
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hurt borrowing capacity if it's not managed effectively. If you get the right advice around
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that, it's really important that the structure is set up early and set up correctly.
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Understanding what the drivers are in your financial statements,
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depreciation, one-off purchases, how that's treated, how
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your owner's salaries are treated by the bank. By really
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understanding the numbers and the financials, it puts you in a lot better position to
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be able to borrow the money. Timing of income, often people defer
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livestock sales or commodity income to fix a tax
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planning problem. This can often make your financials not look
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as effective as what they should. The next year, you might be looking to expand your
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business, but you might have made a loss in the previous year. Because
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that was the advice that you were given and you delayed the sales of some
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cattle. But that might then impact your ability to borrow the money when
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the opportunity arise. So it's really important that you
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think about if I'm looking to buy a property in the
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next little while, what my financial statements show
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and the picture that paints of my business. The other thing is around security.
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So understanding that different banks have different policies around loan to
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valuation ratios. And when we talk about loan to valuation ratios, what
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we're talking about there is how much security you've got and
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how much the loan is. And so different banks look at different properties
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and and what they'll lend different amounts of money against the same property.
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So one bank might, if you've got a million dollar property, they might lend you $600,000 against
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that, where another bank might lend you $700,000 and others might
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only lend you $500,000. So each bank has a different policy and
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by skipping the broker and going directly to the bank,
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you're only getting one bank's view on that policy. So it's really
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important that you understand how the LVR works
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and that different banks have different policies so that When you're applying for
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a loan, if your bank says, oh, you don't have enough security, well, there might
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be another bank next door that has a different policy that will lend you a bit more money.
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And that might be the difference between buying the property or not. And how
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banks view your security is different too. Different asset classes have
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different views in terms of the bank's credit policies. So if you have a
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rural property in a certain location, one bank might consider
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that acceptable security where another. So if you've been with one bank for a long
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time and you go in there and ask for a loan, well, If they don't
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like that postcode or like that location of that property, they
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mightn't give you the money where another bank will. The other thing that's really important is around structuring,
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you know, how assets are owned and how your trading entity is set up.
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A broker will help you with understanding and navigating
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that with a bank. whereas a bank manager will just assess what they're given.
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So having a broker working for you, understanding if
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I've got a company set up or a trust set up and how
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that works when you come to borrow money and how that impacts on
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being a guarantor and who the guarantors are going to be is
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really important. So if you skip a broker and just go directly to
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the bank, the bank manager isn't traditionally going to give you advice
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around the structure. They're only going to assess what they're given and present it in front of them.
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Just quickly, if you're tired of expanding your operation to a new bank manager
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every year, only to get a one-size-fits-all deal that doesn't
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fit your business, we can help. At Season Finance, we do things
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differently. We've got over 70 years of combined experience in
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agricultural lending, and we work for you, not the banks. We're the
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consistent expert team in your corner, fighting to get the finance that
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actually helps you grow, purchase the next property, and build your
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legacy. Don't leave money on the table. If you're looking at your next move or
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just want a second opinion on your current setup, Click the link in the show notes
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to book a confidential, no-obligation chat with the team, and
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we'll show you what's possible. Righto guys, now back to the episode. The
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other thing that's really important is around how the business is structured, is around separating
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your landholding entities from your trading entities, understanding if
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there's litigation risk and asset protection succession. It's
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really important that people start out in ag, if
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they have off-farm businesses, and how that cash flow will
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impact and assist them with growing their business or
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buying a property. And also considering what litigation
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risks there is with off-farm businesses and how you protect the assets that
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you might buy. And having that structure really
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set up in a robust and thought out way makes it really
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important for the customer when trying to protect assets
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and also transfer them to the next generation. Now that you understand the core fundamentals
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of the things that you need to know, the other thing that really is
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important is that bank choice matters more than you think. And different
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banks have different policies on how they treat things like livestock trading.
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One bank might view livestock trading as a way
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they prefer breeding. And the other thing they might
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look at is adjustment. Different banks have different policies around
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how they view adjustment income. Off-farm income is
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also considered differently from different banks. So
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it's really important. If you skip the broker and go to one bank, you're only
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going to get one view on how those different sources
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of income are viewed by that bank. And that might be the difference between you
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being able to secure a loan or not. So a broker will be able to put
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you with the bank that actually accepts adjustment as
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income, or accepts livestock trading as income, or accepts your
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off-farm income in the servicing capacity of the
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business. So it's really important that you understand
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a banker will only assess that on the policy that
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they have in front of them, where a broker has access to the multiple funders
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that have all different policies. The other thing that's often important to understand
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too is different banks have different concentration risks around different locations,
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different industries. different commodities. Often, a
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bank might have too much exposure in one commodity. And this
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is why it's really important that you work with a broker to be able to look
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at the different options and the multiple lenders if required. Because
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as I've said, there's different idiosyncrasies with each different bank that
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if you just walk into one bank, you're going to get their view on the world, where if you
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go to a broker, you're getting multiple views across different industries, different
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locations. But even with the right bank and the right broker, there are hidden
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factors that can silently destroy your borrowing capacity. And
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things that most farmers don't even realize are working against them until it's
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too late. And some of these silent killers of your borrowing power are overaggressive
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tax minimization. Often, you know, especially in the rural
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industry, you know, people don't often like to pay tax,
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which is fair enough. But does that impact your ability to borrow more
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money, to buy the next door farm, which will actually make you more money in the long term? By
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being too aggressive on the tax minimization can often be
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a big handbrake on being able to buy a property or
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expand your business in the future. You know, and not reviewing old debt
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facilities as well is, you know, they're on outdated interest rates.
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You know, if they weren't reviewed and restructured, often there's
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rate creep there where the rates have slowly gone up over time. And
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what that does is you might have a loan sitting over there that's on a higher interest
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rate, but if it was restructured or refinanced, it would have been a lot better rate,
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then that gives you the ability to borrow a bit more money as well. The other thing there's often
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is, you know, personal debt, you know, that's taken into account in the serviceability
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analysis, if the structure's set up that way.
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So understanding, you know, if your personal debt's over here, what impact that
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might have on your business and be able to borrow more money on
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the farm. The other big thing is, you know, we've said time and time again,
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but is the poor presentation of financial information. You know, even
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when your numbers are good and if it's not presented well or things aren't up to date, that
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can often, you know, paint a bad picture and often inhibit your
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ability to borrow more money. And not telling the bank the story behind the
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numbers, if there's a drought or something happened in the business or
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there was a flood, you need to be able to tell what happened in
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those years. The reality is that there'll be ups and downs in your income
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and it's not like a commercial business where there's consistency every year around
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sales and rural business has you know, big years,
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small years, and there's all sorts of things that happen from a tax point of view
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with deferred livestock sales and, you know, farm management deposits that
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need to be taken into account. And you need to be able to paint that story to the bank around,
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you know, what happened in that year and understand exactly what your accountant does
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with your financials so that when you go to borrow money, you're prepared and
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you present your business in a professional way and understand the numbers. Now,
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here's the critical distinction I need you to know. Just because you can borrow
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the extra million dollars doesn't mean you should. Being able to
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borrow an additional one million doesn't mean that you should always do it. Debt
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that improves productivity versus lifestyle debt, you
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need to be really careful that you don't end up with debts that this
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farm or the business is having a service that aren't productive to the farm
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or making it grow or stronger. Just because you can go and borrow
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more money to do things doesn't mean you always should. And the other thing that you
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should also look at is also stress testing for interest
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rate rises, input cost spikes, and seasonal
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shocks. There's always something that comes out of left field with a
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farming operation. And when you run your numbers, make sure that you do
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different scenarios. If there's a 20% reduction in the
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commodity price, what does that mean? 10% increase in
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input costs? What does that mean to the business? And if it doesn't rain
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next year, what does that look like? So all those scenarios need
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to be taken into account, and having someone to help you put that
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together is really important. So here's my challenge to you. Stop accepting the
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first number that your bank gives you. Stop assuming that because you've
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been loyal to one bank for 40 years that they're giving you the best
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offer. Stop thinking that your tax accountant advice and
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your finance strategy are the same thing, because they're not. The
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extra million dollars in borrowing capacity I've been talking about, it's
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not hypothetical. I see it every single week. A farmer comes
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to us after being knocked back by their bank or after
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accepting a conservative offer, and we show them how they
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can unlock an extra 30, 40, sometimes 50% more
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capacity just by changing how the deal is structured and
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which bank they approach. That's not magic. That's not luck. It's
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the understanding of the system and knowing how to work in your favour. You
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now have a framework, clean numbers, clean plan, right
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structure, right bank, and right representation. And
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the question is, are you going to apply? Because the farms that are securing
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the best deals right now aren't waiting for the bank to come to them. They're
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not hoping loyalty will carry them through. They're being strategic, they're being
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prepared, and they're working with people who understand both sides of
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the table. If you want to talk about your position, your operation, and
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maximising your borrowing capacity, or if you just want a second opinion on
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whether you're leaving money on the table, Reach out. That's what
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we're here for. Because at the end of the day, the difference between a good deal and
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a great deal can be the difference between staying where you are
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or buying in block next door. Thanks for tuning in to Dollars in
15:10
the Dirt. If you've got value from today's episode, make sure to
15:13
subscribe so you never miss the insights you need to grow your business. And
15:16
if you're ready to stop being just another number to the banks, visit Season
15:20
Finance via the link in the show notes. Remember to follow us on