Latest / Dollars In The Dirt / #009 - I Audited 100 Farm Loans. 92 of Them Were Making This One Mistake.

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#009 - I Audited 100 Farm Loans. 92 of Them Were Making This One Mistake. · Dollars In The Dirt

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  Over the last 12 months, I've personally audited over 100 farm
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  loans. Structures from across Queensland. These were
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  good, profitable family operations. And what I found was
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  shocking. 92 out of 100 were making the
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  exact same mistake. A mistake that was costing them, on
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  average, $27,000 a year in unnecessary interest and fees. This
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  isn't a small error, it's a fundamental misunderstanding on
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  how a bank structure agricultural debt. It's
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  so common that I can almost guarantee you are
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  making it right now. In this episode, I'm going
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  to reveal exactly what this one mistake is, show
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  you how to spot it in your loan documents in under five minutes. and
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  give you the exact steps to fix it. This is the single most
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  profitable time you'll spend on your business this year. Welcome
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  to Dollars in the Dirt. I'm Brecon Curtis, and this is where we break down
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  the finance side of farming so you can grow your operation, buy
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  that next property, and build real wealth. Let's get into
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  it. So what is this one almost universal mistake? It's
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  this. Your debt is structured for the bank's convenience. not
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  for your profitability. And let me say that again. Your
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  debt is structured for the bank's convenience, not your
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  profitability. And what does that actually mean? It means your
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  loan facilities are almost certainly set up in a way that
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  is lazy, inflexible, and expensive. It's
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  a one-size-fits-all approach that makes life easy for the bank's internal
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  systems, but it costs you a fortune. The most common way
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  this shows up is in the use of a single, large overdraft
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  facility that runs your entire operation. It
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  seems simple, right? All your income goes in, all your expenses go
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  out, and you just manage the balance, and the banks love
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  this because it's easy for them to monitor. But it's a trap, and
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  here's why. An overdraft? is a high-cost, high-risk
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  form of debt. The interest rates are typically much higher than a structured
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  term loan, and because it's a fluctuating facility, the bank can,
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  in theory, depart on repayment at any time. It gives them
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  all the power, but the real cost is hidden. When you run your entire
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  business through an overdraft, you lose all visibility and
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  control over your different types of debt. Your long-term capital
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  debt for your land is mixed in with your short-term working capital
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  for livestock and your personal drawings. And it's a
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  complete mess. You can't see what's really driving your costs
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  and you can't strategically pay down your long-term non-deductible debt.
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  Think of it like this. You wouldn't run your household budget by
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  just throwing all your bills, your mortgage and your grocery money into one
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  big pile. and hope for the best. You'd separate
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  it. You'd have a plan. Yet, that's exactly what
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  most farms are doing with their multi-million dollar businesses. Let
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  me give you a real example. I had a client, let's call him Dan.
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  Dan was running a successful car operation, turning over
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  about $3 million a year. But all his debt, his
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  land, his stock, and his equipment, even his personal car
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  loan, was sitting in one big overdraft facility at 7.5% interest. He
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  couldn't see where his money was going. He couldn't tell if he was
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  making progress or just treading water. We
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  restructured it. We split his land debt into a separate term loan
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  at 5.8% and we set up a smaller working capital
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  facility for his stock purchases. And we moved his personal
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  expenses into a separate account. Within the first year,
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  we saved over $35,000 in interest. But more
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  importantly, he could finally see his business clearly. He
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  knew exactly what it costs to run the operation. He
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  could be more strategic in his decisions around where to invest.
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  So how do you spot this in your finances? It's simple. Look
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  at your loan statements. Do you have one large fluctuating
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  overdraft that everything flows through? Is your land loan, your
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  stock loan, and your equipment finance just lumped together? If
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  the answer's yes, you're making this mistake. Now
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  let's talk about the solution. The solution is to separate and
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  structure your debt according to the purpose. This is the absolute
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  foundation of a sophisticated agricultural finance. You
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  should have at least three separate facilities. First, you
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  should have a core debt. This is your long-term loan
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  for your land. This should be structured potentially as
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  principal and interest term loan on the lowest possible interest rate.
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  The goal is for this loan to be slowly and steadily paid
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  down over 20 or 30 years, building you equity. This
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  is your wealth building debt. It's backed by an appreciating asset and
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  it should be treated with the respect it deserves. Secondly,
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  you have your working capital facility. This is your operational
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  expenses, buying livestock, paying for fuel, wages and
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  so on. This can be a smaller, more flexible overdraft or
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  a line of credit. It allows you to manage the seasonal ups and downs of
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  your cashflow without touching your core debt. It gives you
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  clarity on your true cost of running your business and it
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  shows the bank you're a professional operator and you understand the
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  difference between a capital investment and operational expenses.
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  Thirdly, you have your personal drawings. This should be completely
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  separate from your business accounts. Pay yourself a regular wage from
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  the business into the personal account and run your household expenses from
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  there. When your personal spending is mixed in the business, the
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  bank sees it as a risk and looks unprofessional. And it
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  makes it impossible for them to accurately assess the profitability of
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  the business itself. By separating your debt like this, you
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  achieve three things. First, you get clarity. You can
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  see exactly what your business is costing you to run, and you can
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  make smarter decisions. Second, you get control. You
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  can strategically choose which debt to pay down first, always
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  targeting non-deductible personal debt before your tax-deductible business
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  debt. And third, you get a cheaper cost of funds. A
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  structured term loan will always have
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  a lower interest rate than a big, messy overdraft. That
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  difference alone can be tens of thousands of dollars a year.
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  So what are the exact steps to fix this? Step one
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  is to review your current loan structure. Get your statements out, identify
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  the different types of debt, how much is for land, how much
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  is for working capital, and how much is personal. Write it all
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  down. Get it clear in your head. Step two is
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  to engage a professional. And this is not something you should do on
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  your own. You need a broker who understands agricultural finance to
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  do this. And go to the bank and negotiate a restructure. They
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  can model the different scenarios and show the bank how a new, cleaner
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  structure is actually less risky for them. The bank
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  is more likely to say yes to a broker who presents a professional
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  business case than a farmer who walks in with a request. If
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  you want our help with this, we have a link below to book a free
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  call so we can see if we can help you get where you're trying to
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  go with your farm. Step three is to implement the
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  new structure and stick to it. This requires discipline.
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  It means running your business like a professional CEO and not
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  just a farmer. It means having a separate account and
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  clear financial controls. It means paying yourself a wage
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  and living within your means. It's not glamorous, but
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  it's how you build wealth. Let me be clear, the banks are
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  not going to suggest this to you. Why? Why would
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  they? The lazy expensive overdraft is easy for them.
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  It makes them more money. It's up to you to take control. This
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  one mistake, this single simple structural error,
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  is the biggest single source of lost wealth I see in
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  Australian agriculture. Fixing it is the fastest way to
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  increase your profitability, reduce your risk, and
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  unlock your capacity for future growth. Take five minutes today,
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  look at your loan statements and ask yourself, is
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  my debt structured for my bank's convenience or my
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  family's future? Thanks for tuning in to Dollars in the Dirt. If
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  you've got value from today's episode, make sure to subscribe so
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  you never miss the insights you need to grow your business. And if you're ready to stop
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  being just another number to the banks, visit Season Finance via
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  the link in the show notes. Remember to follow us on socials and catch