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#023 - The Most COMMON Farm Finance Questions I Get Asked · Dollars In The Dirt

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The single biggest mistake ag producers make when asking about finance is
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focusing on the wrong question. It's a trap that costs producers a
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fortune and most people think that asking, is this a good interest rate,
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is the key to a good deal. And the truth is, it's about asking the
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right questions about your structure. After helping hundreds of
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farming and grazing families secure over a billion dollars in finance, I
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can tell you that the best deal is rarely the one with the lowest
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advertised rate if the structure's completely wrong. So in this video, I'm
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giving you the exact five-step framework I use to answer
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the most common farm finance questions I get asked, so
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you can stop worrying about the rate and start focusing on the
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growth of your family farm. 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 the first question I
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often get asked is should I stay fixed or variable, especially when
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rates are going up? People call all the time and say,
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should I fix? And the reality is that once interest rates start to
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go up, the banks price the fixed rates at a higher rate than
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the current variable rate. So it's all too late. Once
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interest rates start to rise, it's too late to then call and say, oh, now's the
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time to fix, because the banks actually price the
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market as what they're forecasting the rates to go. For
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example, at the moment, you'd be paying 50 to 70 points
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higher for a three to five year fixed rate on the current variable rate. On day one,
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if you decide to fix your facility now, you're locking in on that
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higher rate today and rates might go up, they could potentially come
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back down at some point. So you've really got to weigh up the cost of
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whether fixing it now at a higher rate is going to deliver you
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a lower overall cost of capital. So the smart strategy
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is around having a strategy constantly around your interest rate management and
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looking to Fixed rates in tranches of your debt
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depending on your debt level. Fixing a portion of your debt
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now with an expiry date in three years time and then maybe in
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another 12 months you look at a five-year rate. So you've got different
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expiry dates for your money coming off fixed so you're not
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exposed to the current one interest rate market at the same time. is
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a strategy that a lot of people use. So there's different ways you can look
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at fixing and managing the risk of interest rates without having
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to fix the entire debt all at one point in time and that way you're
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getting an average rate over a certain time and that means you
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can be at ease that if interest rates do go up that you've
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got some sort of protection in place to de-risk your
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business around rising interest rates. And then also leaving some portion of
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a variable, so if rates do come down, you also get the benefit of
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the reducing interest rates. So it's every person's situation
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is different, depending on, you know, if you're looking to sell assets, fixing
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interest rates is not probably a good idea because there's break costs involved. It
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also reduces your ability to refinance. If you need to change
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banks or, you know, look at different options, if you're fixed
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in, also limits your ability to do that. There's all
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sorts of things that you need to consider when looking at fixed or variable and
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having a strategy around that is really important and talking with your
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bank manager, your broker, your accountant, different people
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in your – professionals in your business to make sure that you're looking at all the options
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and making an informed decision and having that strategy in place. The
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next question I often get asked, my next door neighbor is on 5%, am I on a good rate? Every
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person's situation is different. And the way that the
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banks price your interest rate is around your security position
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and your risk profile to the bank. So your financials get put
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into their system and they come up with a risk profile for
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you and your business. And that's how their pricing models
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are worked off a risk profile and a security model. Comparing your
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next door neighbor's interest rate is no point really, because the
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value of their security might be different to yours. Do they have off-farm investments that
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are helping with their cashflow? Do they have off-farm jobs? There's
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so many variables that go into a business, and no two businesses are exactly
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the same. So a good interest rate is one that's been tested in
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the market and made sure you've looked at all the different options around.
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The different banks have different policies, so being able to compare what
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the offers are from different banks is really important and that's where we come into
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it as a finance broker. We present the different options
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to you that the banks provide based on your
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individual scenario. Having a broker
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work with you is really important around being able to put that together. Doing
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it yourself, it's all possible, but it's very time consuming. Knowing
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who to talk to in the different banks is often hard to
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work that out. Also, the time that goes into that around
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having to meet them all, present the information, answering all the questions. deciphering
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what comes back to you from them. You know, there's all the different fees, line
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fees, unusual limit fees. There's all sorts of things that
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will come back in an offer and then you have to be able to put that together to understand your
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overall cost of capitals. So yeah, and recently I did an episode around
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how to analyze your interest rate, what's a good rate, and how to look
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at comparing the different rates that come back to you. So refer
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back to that episode. We go through that in detail around comparing
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interest rates and offers from banks. Just quickly, if you're tired
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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. Another question I get often, you know, is how much
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I can borrow and without fully understanding your position and
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your business, it's really hard to answer that question accurately.
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So the things that we need to understand is your current asset position,
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your income, And I've done an episode recently around
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that, around what's required to be given to a bank to
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assess your borrowing capacity. So the things that we need to look
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at is around your serviceability and your security. So
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they're the two things that the bank will look at. Understanding how
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much you can borrow differs between bank to bank, and that's where it's
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really important to engage a finance broker to be able to look at the different policies
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across different banks. Because one bank, and we've recently had examples where
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we had a borrower with one bank could only borrow a million dollars, and with
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two other banks, they could borrow 1.7 million. So if
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you yourself went into that one bank, you'd only be able to borrow that million
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dollars. If you went to a broker, they'll be able to come
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back to you with all the different options around what the
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banks are offering and making sure that you're matched with the bank that suits your
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business and the policies align with where you want to take your business. Understanding
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how much you can borrow, it's not a simple question. There's lots of factors
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that go into it around living costs, dependents,
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boarding school fees, all sorts of things that go into to
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understand your borrowing capacity. Once you understand how much you can borrow, people
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say, should I borrow the maximum? It's probably good practice to
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leave a bit of buffer in your borrowing ability if things don't go as planned. So
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borrowing the maximum up front really makes it hard if things don't go to plan.
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So leaving some room to move and not borrowing
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to your maximum capacity every time is
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probably a good strategy to look at to make sure that you don't get caught in
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a hard spot when you can't borrow anymore. I often get asked,
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what can I borrow money for? All the different assets of cattle,
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properties, shares, investments, off-farm investments, houses.
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You can borrow to pretty well do anything, but just making sure you align with
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the right lenders. There's a lot of lenders out there that specialize in different asset types.
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For example, we did a recent episode with Richard Brimblecone from Legacy
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Livestock. Those guys just focus purely on
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livestock finance. There's different asset classes around equipment. There's
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certain funders that only do certain sorts of equipment. So
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making sure that you've got someone that if you want to borrow something that's not
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mainstream or apart from a house or all the banks
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pretty well do houses, making sure you've got someone that can actually access,
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for example, solar. People need solar finance for solar
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systems. There's certain lenders out there that just focus on doing solar
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facilities. There's all sorts of things out there that you
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need to finance and there's different niches around people that finance
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those sorts of things. Having a good broker that has access to the different lenders is
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really important. to be able to make sure that they're
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directing you to the right type of finance and you're not going or
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wasting your time trying to get finance through a lender that doesn't actually specialize
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in that asset types. Another question I get asked regularly is around what
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a property price is going to do. And it's a bit like picking what the rainfall is
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going to be next year or what the cattle prices are going to be in 2027. There's
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no point trying to predict where prices are going to be. It's just
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probably the good businesses don't worry about ups and downs of property prices.
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They just have a buffer in their business to be able to absorb if there is
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a retraction in property prices that their business is
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able to absorb that. And having their
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properties in good repair and good order is another
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really good thing. They're constantly reinvesting back into the properties, making
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sure that all the improvements are up to date, that the
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fences are good, the sheds are all good and the cattle
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yards are good. All those sorts of things go into making
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sure that your property's maintained and that over time, as
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prices go up, that you're able to take advantage of a revaluation and
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then maybe extract some more equity and buy another property. But basing
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your business around just predicting that property prices are going
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up probably is fought with danger in terms of
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making decisions based on what future prices might be. So they mightn't
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always go the way that you think or there might be a lull in the market when you want to
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do something. So making sure that you're that your
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business has a constant average property price and just don't
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get too optimistic around what prices are going to be is probably the key there and
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just work with what the current valuation is and make decisions based
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on that really. The question I get asked every week is how do young people get
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a start in the rural industry? And we've talked about this a lot and we
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touched on that with Richard in the previous episode with Legacy Livestock also
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around getting a start for young producers and he had some great points
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there around that. And the biggest thing is building an asset base
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to be able to work with. And, you know, if that's a house or, you know, start
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small, try and stay away from the
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non-deductible sorts of debts, you know, cars and toys and
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that sorts of things is really important. And building those growing assets that
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compound over time, you know, starting with a a small
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breeding herd of cattle or sheep or taking a lease property to
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do some farming. Whatever your passion is around the
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rural industry and making sure you constantly have
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a goal that you're working towards and looking to increase your
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assets over time and small incremental steps year
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on year with a little bit of, if you get some assistance with
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rising property prices and before you know it, you're buying a second
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property and then you're buying another mob of cows and all sorts of things and that just compounds
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over time. So, start somewhere is probably the biggest thing I tell people.
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Make sure you're doing something. Be smart about where you're investing. Just try
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and stay away from things that aren't going to help you achieve your goals and
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if you stick at it with consistency and over time, you
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eventually get there. I've seen some, we've had some great examples of young
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people that have come to me, you know, 10, 15 years ago that They
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now own cattle stations and if we had said to them 10 or
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15 years ago that where they would be today, they wouldn't have believed where they've got to. But
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they've been consistent. It's probably the biggest thing and they've started small. They've built
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on their assets and over time they've got there and
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got some great businesses and there's some great stories around that. So remember
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guys, don't get caught up in the wrong questions. Focus on your structure, your
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cash flow and your strategy. We've covered a lot of these points in previous episodes
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with a lot more depth than what we've talked about today. So refer
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back to those episodes and if you need help answering any of these questions for
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your specific operation, please don't hesitate to reach out to
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myself or my team at Season Finance. And as a broker, this is
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exactly what we do for our clients. Please reach out and I'll look forward
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to talking to you in the next episode. 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