Need finance for your farming business? Use the 3C's approach for your finance application

Access to finance is essential for any business. For farming businesses, a successful finance application relies on demonstrating that you ‘tick all the boxes’ for your financier.

Not sure where to start? Below we provide an overview of the lending landscape in Australia, and a straightforward 3C’s approach to help you prepare your finance application.

The lending landscape in Australia- who lends to farming businesses?

Traditionally, when we talk about lenders working with farming businesses, we are referring to the major banks. More than 90% of lending for this sector comes from these institutions, and they often have specialist departments who have a solid understanding of the complexities of farming businesses, including the seasonality of cashflow.

Finance – also referred to as debt – is the most common tool that farming businesses use to fund major items, such as operations, equipment needs and land acquisitions.

There are also some emerging non-bank lenders in this space – many of these provide asset finance, working capital (trade) finance, foreign exchange, and supply chain finance.

Whichever financier you choose to work with, the key priority is to ensure that they have expertise and understanding of your sector.

What do lenders look for in an application?

Generally, the key things that a lender will look for in a finance application are:

Your ability to meet your debt obligations, even when conditions change. For farming businesses, finance is typically used to fund the major items of operation, and also to fund things like day-to-day cashflow. A financier’s appetite for offering credit is generally heavily influenced by market conditions, commodity prices and offtake agreements. When assessing a credit application, financiers look for indicators that you can manage your debt, not just in the ‘good times’ (such as we are experiencing now with low interest rates, high commodity prices and increasing land values) – but also conditions when these factors may be heading in the opposite direction.

What is your track record? The two key questions that a financier will consider are:

  • What is your history of repayment?
  • How will they get their money back?

Answering these questions and providing your financier with the confidence they need to approve your application can be achieved by taking a relatively straightforward approach: The 3C’s.

The 3C’s approach

Your finance application needs to show your financier that you can manage the level of debt you are asking for, and that you’re not a risk to them. By applying the 3C’s approach – Character, Capacity and Collateral – you can paint a picture of yourself and your business, and illustrate your technical and financial skillset.

C Number 1: Character

Financiers, first and foremost, are interested to find out about you as a business owner – your history, your financial track record, and your vision for your business. Their key objective is to determine If your character is someone they can trust in a business relationship during the good times and the bad.

Building this rapport and trust with your financier is best achieved by letting them get to know you one-on-one. Being transparent and forthcoming with information will help them to evaluate you and your business. Make sure you introduce the key team members within your business and be open to meeting the team (including senior figures) within their organisation.

C Number 2: Capacity

Equally as important to getting to know your character, financiers also want to know about your credit history, and your capacity to manage debt in your business. In particular – demonstrating where you have successfully managed risks brought about by factors that are out of your control (such as seasonality, commodity prices and market disruption outside of your control) add strength to your application.

To do this, it is important to illustrate your financial skillset. You can do this by presenting all the documents and financial information that they are looking for. You can provide a 3-way financial projection (Profit and Loss, Balance Sheet and Cashflow) to demonstrate your ability to manage your operations and current and future debt obligations. If you are going to your lender regarding a new product line, make sure you show that you have prepared trustworthy future cash flows based on assumptions, which may include revenue streams, forward contracts, costs, synergies (both revenue and cost) and any seasonality.

This handy checklist (link) provides a quick guide that will help you to prepare all the documents that your financier will want to see.

C Number 3: Collateral

Last, but by no means least, your financier is looking for security. They need to know the collateral you put forward to support your application. Their assessment will be guided by whether the collateral put forward is suitable to them.

Traditionally, the number one security that a financier looks at is the value of your land, but there are also a range of alternative forms of security – such as supply agreements, inventory water stocks and invoices.

As a borrower, you need to carefully consider the collateral that a financier has security over. Think through the security over assets such as your family home when you are preparing your application

Checklist: Documents to provide to your financier

Going to see your financier regarding funding for your farming business can be daunting. To make sure you are getting the best results for your business, use the checklist below to strengthen your application. This information will demonstrate to your financier that you have the tools to manage your debt.

  • Most recent annual financial reports and tax returns
  • YTD Management P&L and Balance Sheet exported from well-known accounting package: XERO, MYOB, QuickBooks, or an industry specific program.
  • ATO Portal Statement for the last six (6) months
  • Current statement of assets and liabilities
  • Bank statements for trading accounts and loans for the last six (6) months
  • Debtors and creditors (if applicable)
  • Stock / inventory register
  • Three-way cashflow or cashflow projection

You can also prepare an information memo about the proposed finance and what it will mean to your operations, and details about future CapEx requirements and funding needed.

Hamish McIntosh of Bentleys Finance recently delivered a Managing Debt webinar presentation to Growcom members. You can view the webinar here.


Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.</em


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