Latest / Dollars In The Dirt / #017 - Most common mistakes farmers make with their property loans

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#017 - Most common mistakes farmers make with their property loans · Dollars In The Dirt

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  Most farmers do the exact same thing after they sign their
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  loan documents. They breathe a sigh of relief, file the paperwork away,
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  and get back to the real work of running the farm. It makes perfect sense,
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  but that one simple act could be quietly costing them tens
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  of thousands of dollars a year. The common belief is that if
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  you've got a good deal on your loan, it stays a good deal. And
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  the truth is, a loan that was competitive five years ago is
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  almost certainly a financial handbrake on your business today. The
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  market changes, banks policies shift, and
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  what was once a great deal is now silently draining your
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  profit. After reviewing hundreds of farm loans, I see this same
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  pattern over and over again. So in this video, I'm
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  breaking down the eight most common and costly mistakes that
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  stem from this set and forget mentality, and I'll show you how
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  to spot and fix them to save thousands and unlock future
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  growth. Welcome to Dollars in the Dirt. I'm Brecon Curtis, and
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  this is where we break down the finance side of farming so you can grow
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  your operation, buy that next property, and build real wealth.
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  Let's get into it. Number one is focusing only on
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  the interest rate. We've talked about this before. The cheapest rate
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  is not always the best loan. The true cost of a loan
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  includes all the other fees, your line fee, unused limit fee,
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  establishment fees, valuation costs. Two loans
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  might look identical on the rate sheet, but once you factor in all the fees,
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  One could cost you thousands more each year. So
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  the tactical step here is to always look at the total cost of credit, not
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  just the headline rate. You need to do the maths and figure out
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  what you're really paying. A good broker can help you with this, but
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  it's something you need to be aware of. Don't fall for the bank's marketing tricks.
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  The next mistake is a big one, and it's about leaving yourself enough room
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  to move. Agriculture is a volatile industry. You
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  have to deal with weather, fluctuating commodity prices, rising
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  input costs, and that's why it's so dangerous to borrow right
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  up to your absolute limit. Many farmers structure their
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  loans with no buffer, and when a bad season hits or
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  prices drop, the pressure comes on very quickly. Good
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  seasons can make borrowing feel more comfortable, but
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  your loans need to be able to survive the bad seasons too. So
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  the tactical step is to always build in a buffer into your
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  borrowing. Don't max out your LVR, leave some equity in
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  your property as a safety net. It might mean you can't borrow as
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  much as you'd like to in the short term, but it'll give you the resilience to
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  ride out the tough times and be in a position to expand when
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  good times return. Number three, not structuring loans
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  around farm cash flow. And this is a classic mistake. The
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  bank sets up your farm loan with a monthly repayment, just like a
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  residential home loan. But your farm income isn't monthly,
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  it's seasonal. You might get paid once or twice a
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  year. A rigid monthly repayment schedule can put a
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  huge strain on your cash flow and force you to sell livestock or
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  grain at the wrong time just to make a payment. Your
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  finance should follow the rhythm of your farm, not the bank's standard
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  template. and there's a better option available. You can negotiate for
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  seasonal repayments that line up with your income. You can build
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  an interest-only period to get you through the off-season, and
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  you can have flexible redraw facilities that let you access funds
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  when you need them. The tactical step is to demand a
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  loan structure that works for your business and not just for your
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  bank's system. Number four
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  is not reviewing your loans regularly. Set and forget is a recipe
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  for disaster in farm finance. I see so many producers
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  who might have been with the same bank on the same loan structure for 10 or
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  20 years, but the market is constantly changing. Interest
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  rates move, lending policies change, and the property value
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  increases. A loan that was competitive 10 years ago is
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  almost certainly not competitive today. A quick loan
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  review every couple of years can save you tens of thousands of
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  dollars over the life of the loan, and it can help you reduce your interest
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  rate, improve your loan structure, and increase your flexibility. So
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  the tactical step is to diarise a loan review every two
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  years. Sit down with your broker, look at what the market is
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  doing, and see if there's a better deal out there. Loyalty
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  to a bank that isn't looking after you is a very expensive
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  mistake. And that comes to number five, the
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  over-complicating loan structures. Just quickly, if
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  you're tired of explaining your operation to a new bank manager every year, only
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  to get a one-size-fits-all deal that doesn't fit your business, we
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  can help. At Season Finance, we do things differently. We've got over
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  70 years of combined experience in agricultural lending, and we
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  work for you, not the banks. We're the consistent expert team in
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  your corner, fighting to get the finance that actually helps you grow, purchase
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  the next property, and build your legacy. Don't leave money on the table. If
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  you're looking at your next move or just want a second opinion on your current setup, click
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  the link in the show notes to book a confidential, no obligation chat
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  with the team, and we'll show you what's possible. Righto guys, now back
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  to the episode. Now on the flip side of a lazy unstructured loan
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  is a loan that is structured too complicated. I've seen businesses
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  with multiple different loans across different banks for
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  different parts of their operation and it becomes an administrative nightmare.
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  You're paying multiple sets of fees, you're trying to keep track of your multiple
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  repayment schedules and you lose all clarity on your
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  total debt position. Simplicity is often better.
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  The best approach is to have a clear, simple loan structure that
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  is aligned with the different parts of your business. A core
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  debt facility for your property, a working capital facility for
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  your operations and a separate facility for your machinery. Finance
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  should support the business, not become another management burden.
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  So the tactical step is to consolidate and simplify your loans where
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  possible. Get everything under one roof with a clear structure
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  you can easily manage. Number six is
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  not understanding all the fees. We've touched on this before, but it's
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  so important it deserves its own point. Fees can quietly add
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  up and cost you a fortune. The most common fees that
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  farmers overlook are line fees, unused limit fees, annual facility
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  fees, fees for valuation updates, early repayment penalties.
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  A line fee of 0.25% on a $3 million facility is
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  $7,500 every single year, regardless of how much of the loan you're
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  using. And that's a lot of money. So the tactical
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  step is to get a full list of the fees associated with your loan and
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  to do the maths. Understand what you're paying for, and
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  if you're not using a particular feature, ask for the bank to remove it.
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  Don't pay for things you don't need. Number seven, fixing
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  your loans without understanding the trade-off. Fixing your
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  interest rate can be a smart move, especially in a rising rate
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  environment. It gives you certainty over your repayments, but it
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  also comes with a significant trade-off. The main one is
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  the lack of flexibility. If you fix your loan and then you
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  need to sell a property or refinance, you can be hit
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  with a massive break cost. I've seen break costs in the hundreds of
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  thousands of dollars. Fixed rates also often have restrictions on
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  your ability to make extra repayments. So before you fix
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  your loan, you need to ask yourself a critical question. Does
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  my business need flexibility over the next few years? Am
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  I likely to sell assets? Do I want to be able to pay down debt faster
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  if I have a good year? A fixed rate might look attractive today, but
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  it can be a very expensive trap if your circumstances change. The
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  tactical step is to weigh up the certainty of a fixed rate against
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  the needs for flexibility in your business. Number eight,
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  not planning for growth. And the final mistake is not structuring your loans with
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  the future growth in mind. Most farmers want to expand their
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  business at some point, whether it's buying the neighbour's block, leasing more
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  country, or investing in new infrastructure. But
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  if your current loans are structured poorly, it can make it much harder to
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  borrow more money in the future. For example, if you already
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  have a maximum LVR, or if your loan structure is
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  messy and unprofessional, the bank will be hesitant to
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  lend you more. So the tactical step is to always structure
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  your finance with the next opportunity in mind. Keep your LVR
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  at a sensible level, keep your paperwork clean and professional, and
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  have a clear plan for where you want your business to go. Your finance should
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  be a tool that enables growth, not a handbrake that holds you back.
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  So there you have it, the eight most common mistakes farmers make
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  with their property loans. Finance should be the tool that strengthens your
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  farm business. The best property loans aren't just about borrowing money.
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  They're about creating flexibility, resilience, and long-term growth.
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  Take a look at your own loan today. Are you making any of these mistakes?
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  And if you are, it's time to do something about it. A good broker can
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  help you review your structure, identify the problems, and
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  negotiate a better deal with the bank. It's one of the easiest ways to
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  improve your bottom line and set your business up for a stronger future. Thanks
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  for tuning in to Dollars in the Dirt. If you've got value from today's episode,
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  make sure to subscribe so you never miss the insights you need to grow your
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  business. And if you're ready to stop being just another number to the banks, visit
• 9:04
  Season Finance via the link in the show notes. Remember to follow