Latest / Dollars In The Dirt / #005 - I Compared 100 Bank Loans vs Broker Loans. The Difference Was Shocking

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#005 - I Compared 100 Bank Loans vs Broker Loans. The Difference Was Shocking · Dollars In The Dirt

• 0:00
  Every farmer believes that going direct to their bank is the cheapest way to get a loan. And let's
• 0:04
  be honest, that seems obvious. You can cut out the middleman, save on the fees, and you deal with the
• 0:09
  bank you've been loyal to for decades. But what if I told you that belief that a single decision to
• 0:14
  go direct is the most expensive decision that most farmers make? What if I told you that your
• 0:19
  loyalty is costing you hundreds of thousands of dollars, even millions in lost opportunity, weaker
• 0:24
  terms, and reduced borrowing power? The hidden cost of skipping a broker isn't the fee. It's the deal.
• 0:29
  You never saw, the competing offer you never received, and the structural advice that could
• 0:34
  have unlocked the property next door. In this episode, we're going to expose the true cost of
• 0:39
  going it alone, and I'll show you why. Having the expert in your corner is the single most
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  profitable investment you can make in your farm's growth. Welcome to dollars in the dirt. I'm Brecken
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  Curtis, and this is where we break down the finance side of farming so you can grow your
• 0:54
  operation, buy that next property and build real wealth. Let's get into it. So let's jump into the
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  first hidden cost. One bank equals one policy. There's going to be one lens in one outcome. And
• 1:05
  when you go direct to a bank, you're getting one credit policy. You're getting one interpretation
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  of your numbers. And this is really important to understand that the bank manager that you sit
• 1:14
  down with isn't going to tell you that the bank next door might have a different policy on his
• 1:17
  business that might be better for your operation. Whereas if you go to a finance broker, they're
• 1:22
  going to have access to all those different banks. They're going to understand all the different
• 1:26
  policies of those different banks, and they're going to make sure that you're married with the
• 1:31
  bank that actually has an appetite or policy that suits your business. So it's really important that
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  you understand that by going directly to the bank, you might think you're going to get a cheaper
• 1:42
  rate, but you might get with a bank that actually doesn't have appetite for where you want to take
• 1:47
  your business or where you want to grow. So what does this mean for you? You don't just risk
• 1:51
  decline. You risk being labelled incorrectly in the bank system which can follow you around. And
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  what this means is, you know, if you go to a bank that might have been your bank for a long time.
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  And they say, you know, unfortunately, we can't help you in this circumstance. You know, for whatever
• 2:06
  reason, you don't fit our policy. The next bank you go to is going to say, well, why didn't that bank
• 2:10
  give you the money? And this is the hidden risk of just going directly without using a broker that
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  understands the industry, understands the policies and understands that if we go to that bank, might
• 2:20
  have a detrimental impact on the outcome of the loan. Most farmers think that if the deal is good
• 2:24
  enough, it'll get approved. Then the reality is that banks are hierarchical. Outcomes depend
• 2:29
  heavily on the bank's experience, their credit delegation, their willingness to fight internally
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  for your business. And I've seen this time and time again where we've had a loan application
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  presented to multiple banks, different experience across the bankers, the experience guys get it
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  across the line, then experienced guys because they don't have any experience in that sort of
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  loan or done, you know, seen that before. They don't have the experience to take it to credit and
• 2:53
  fight. And internally the line gets declined. And if you're a customer and you walk into that one
• 2:59
  bank where you've with an inexperienced manager will. The outcome is not going to be what you're
• 3:03
  looking for, and it's not your fault, but it's just the way that, you know, the bank set up and that's
• 3:07
  just how it is. In the opposite circumstance, if you go to a broker, they're going to know who the
• 3:11
  best people are in the industry to work with, and they're going to make sure they get the best
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  outcome for your business. You know the wrong banker can kill a good deal, a great banker can
• 3:19
  get a marginal deal done. And that's the difference that we're playing with here, is that
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  the broker should know who actually has influence, who understands the risk and who's worth taking
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  the deal to. And that's the reality is that, you know, in banking in rural Australia these days, the
• 3:33
  bankers are becoming younger and younger. The customers don't have the experience. Bankers that
• 3:38
  often in the past have been able to get things done. So, you know, you're putting yourself at risk
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  and it's going to cost you a lot of money. If you go to a banker, it might mean the difference
• 3:45
  between buying the property or not, and the difference between whether your business expands
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  or doesn't. The next hidden cost is becoming a reality for more and more farmers. That's the
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  loyalty is risking when relationships change. And what we mean by that is that, you know, a bank
• 3:59
  managers often move on. You know, the tenure for bank managers in regional towns now is, you know, 1
• 4:04
  to 2 years max. And this is the challenge that banks have, is that trying to keep staff in rural
• 4:09
  towns is getting, you know, more difficult because, you know, people are drawn to the coast and they
• 4:14
  don't want to live in these towns. And the business is still there for the banks, but it's
• 4:18
  just having the people to be able to service it. Um, enticing people to work in these towns and
• 4:23
  remote locations is often hard. And what that means for a customer is that, you know, you've got
• 4:28
  constant change, constant turnover of bank managers, having to explain your situation
• 4:32
  regularly. You know, the bank manager might not understand your industry. And what that has is a
• 4:37
  massive impact. If you're you're looking to expand, if the bank you've got at the time doesn't
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  actually understand where you want to take the business or where you're going can have a massive
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  impact. And this can cost you a lot of money. So what is the hidden cost here? Borrowers often
• 4:50
  don't realise their relationship has weakened till they need money. So what we mean by that is
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  that you might realise that the bank manager changed six months ago, and then all of a sudden,
• 4:59
  the next door neighbour's property comes for sale. You're trying to build a relationship with a new
• 5:02
  person in a hurry. They don't understand your business. Then all of a sudden, you can't access
• 5:08
  the money to buy the property and the opportunity gets missed. So, you know, that's a massive cost to
• 5:12
  your business. You know, that property mightn't come back for sale for another ten years. Or maybe
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  never again. You can't really put a price on how much that's costing you when you're not prepared
• 5:21
  and not able to execute when you need to. So loyalty only works when there's someone left to
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  be loyal to. And this is the thing. When there's constant change in bank managers, it's hard to be
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  loyal to a bank when you don't actually have the relationship to the person on the ground, and this
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  is a massive cost to a customer. Not having that relationship locally or that person is constantly
• 5:39
  changing. Makes it really hard to be able to articulate your business. A real business, let's
• 5:44
  face it, as a business that's not simple to communicate with someone around how it operates
• 5:48
  and getting to know the issues around season and commodity price risk. The fourth hidden cost when
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  you bypass a broker and go straight to the bank is that brokers just banks. They know people and
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  brokers are the connectors, not the middleman. They're the person that know who the best bankers
• 6:02
  are in the bank and able to connect you with them. You don't really have the time to go to a bank
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  and find out who's the best person to help me get this finance across the line. And what happens is
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  you get the person that's been delegated to you from the bank or who's in your area, and the
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  brokers don't work like that. They only work with the guys that actually can get stuff done. What
• 6:20
  we've seen is that there's a wide range within one bank. You can have different bankers with
• 6:25
  different experience get totally different outcomes, and your broker needs to know within all
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  the banks who the best person are. They need to know in the credit team who understands rule two.
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  Like that's. The other thing is that, you know, it's all good to have a banker that understands rule,
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  but do the credit guys actually understand your industry or where your business is located? The
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  broker needs to understand that as well and know how to get that articulated to the credit team on
• 6:46
  how your business operates and what they need to know in a really professional manner. The other
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  thing is around which banks are open to different types of transactions, like, you know, we've seen it
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  where some banks have retracted out of certain industries. The brokers need to understand what
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  banks open for beef cattle or poultry, or who's the best person in that industry to go to by
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  being a customer, walking to a bank and saying, I want to buy a cattle station. Well, you know, you
• 7:08
  might get a banker that's never seen a cattle station or been on a cattle station. And how are
• 7:12
  they going to know how to articulate that to the credit people if they don't understand the
• 7:16
  industry? So it's making sure you're working with the right people in your industry that actually
• 7:20
  gets the job done for you. So what happens if you skip a broker? What does going direct mean?
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  Guessing with $1 million decision is expensive, and the hidden cost is something I used to
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  personally see all the time when I worked in the bank. So trust me when I say banks are not neutral
• 7:35
  when advocating for the customer bank staff, they don't work for the customer, they work for the
• 7:39
  bank. So whenever you're dealing with a bank, you've got to understand that the first interest
• 7:44
  of the bank is the bank. And so their job is to minimise the risk and protect the capital and
• 7:49
  follow policy. At the end of the day, that's their main priority, where as a broker we work for the
• 7:55
  borrower. Our job is to find the deal in the best possible way to get the deal across the line.
• 8:01
  Explain the volatility. Tell the story behind the numbers. Tell a story behind the family and
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  position that risk correctly so that the bank fully understands who the people are. And we refer
• 8:13
  to the free Caesar credit around, you know, character capacity and collateral. And that's what
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  the broker's job is to really articulate to the bank those three things around who the people are,
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  what's their ability to repay the loan, and what's the security that's been put on the line as the
• 8:28
  fallback position if the loan wasn't to go to his plan? They're the three things. And the broker
• 8:32
  needs to be able to frame those three things in a really succinct way, so that the story gets told
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  to the bankers and the credit teams, understand the business and where you want to take your
• 8:42
  business and the strategy behind it, and what the risks are, and being able to mitigate those risks
• 8:47
  around if things go wrong, what's going to happen next. So this one gets me riled up because it goes
• 8:51
  against everything I do this business for. And that's banks only assess what's in front of them
• 8:56
  and nothing more. The bank won't optimise the scenario, suggest restructuring or explore a what
• 9:03
  if option. They assess the deal exactly as presented. What a broker will do is they'll stress
• 9:09
  test the scenario. Adjust the structure, change timing, improve timing and work backwards from an
• 9:15
  outcome rather than just looking at exactly what's in front of them. Borrowers often get
• 9:20
  declined for a deal they could have done if it was prepared properly, and luckily the final
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  hidden costs are going straight to the bank. Is the cost of bad timing and poor sequencing
• 9:30
  applying at the wrong time can lock in weaker terms, reduce future capacity, and force short term
• 9:37
  fixes. Where a broker is going to help with sequencing the debt time in the application,
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  avoiding unnecessary credit inquiry. And this is a hidden cost that you don't often see, is that if
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  you don't apply at multiple banks, each one of those banks is going to put a credit check on
• 9:52
  your file, which going to a broker, they're not going to do that. So one rushed application can
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  reduce your leverage for years. An example of this is if a file has been in front of credit
• 10:02
  regularly over a short period of time, maybe it's better to seek an alternative funding source just
• 10:07
  to give the bank a bit of time for you to get some runs on the board and then look at
• 10:11
  restructuring things in the future. And, you know, most lending mistakes don't hurt immediately, but
• 10:15
  they do over time. And the timing, you know, they show up five years later when you go to grow. So
• 10:21
  using a broker doesn't guarantee approval or better rates every time. But not using one means
• 10:27
  you're relying on a single bank and a single person and a single interpretation. That can often
• 10:32
  be a big bet with a rural business. So even if you don't use a broker long term, getting a second
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  lens before a major decision can save a lot of money and stress and good deals fail every day
• 10:42
  because they're badly presented. By using a broker, you maximise your chance of getting a loan
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  because you've got someone that's experience. They've got the contacts within the banks. They
• 10:52
  know how to present your business in the best light possible to get access to the funding. They
• 10:56
  know they can use a mix of funding sources, you know. They're not just locked into one bank's
• 11:00
  credit policy. One bank's view on the world. They can go to multiple options. There's no real
• 11:06
  downside. And the thing with the broker is they only get paid for their results if they achieve
• 11:11
  them for you. Whereas a bank manager, they get paid no matter what. So guys, I'll share a quick example
• 11:16
  around where a broker the difference between using a broker and going directly to the bank. We
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  had a customer that recently looked to buy a cattle station. They had been with the bank for a
• 11:25
  long time. They spoke directly with the bank, but the policy that the bank had around levers and
• 11:31
  the way they treated off farm income and adjustment, it didn't fit their policy, but we were
• 11:35
  able to put it together, structure it differently, so that the new bank understood exactly where the
• 11:40
  customers were going. They were a young couple buying their first property, and what it did was,
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  you know, it was the difference between securing that property and not. And now they've, you know,
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  they're looking to buy their next property after that because they'll able to structure it in a
• 11:54
  way that was within the bank's policies of their new bank, where the previous bank. It was never
• 12:00
  going to work for them just due to their restrictions around their credit policy. So, you
• 12:04
  know, by having the broker there to help you navigate through the policies and which bank is
• 12:09
  working in which areas made a massive difference to this couple's ability to secure the property
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  and their families. Now, you know, looking to buy another property since that purchase, which is
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  it's a tremendous story, and it gives us great pleasure to be able to help a young couple buy
• 12:24
  their first cattle station and then look to secure the next one. So, you know, it's not just
• 12:28
  about whether using a broker or a banker is a better option. It's around, you know, what's the
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  best outcome for the customer, and how do we go about structuring things so that we get a great
• 12:37
  outcome for their family and for their business? Thanks for tuning in. Dolls in the dirt. If you've
• 12:42
  got value from today's episode, make sure to subscribe so you never miss the insights you need
• 12:46
  to grow your business. And if you're ready to stop being just another number to the banks, visit
• 12:50
  Season Finance via the link in the show notes. Remember to follow us on socials and catch you
• 12:55
  next time.