Scepticism about loans program misplaced

Scepticism about loans program misplaced

Agribusiness
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I RECENTLY met with a representative from a government statutory body about low interest rate funding for agriculture. I was sceptical at first, but had no reason to be.

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I RECENTLY met with a representative from a government statutory body about low interest rate funding for agriculture.

I must admit I was a bit sceptical to start with, as I thought the proposition may have been an ill-considered scheme. I was wrong, as it turned out.

While this is nothing on the scale of the old Development Bank, it seems to have some of the same ethos.

I can't imagine any government bringing back a Development Bank type of scenario anytime soon, mostly because I think the days of governments wanting to be involved in commercial banking activities are long gone.

The loans the government representative talked about are specifically targeted towards drought funding and business improvement. According to the website - ric.gov.au - there is $2 billion in funding available at subsidised rates.

The funding is for viable agribusiness operations that can show serviceability, and are assessed in the same way a loan would be from a traditional lender.

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From the conversations I have had, and from my own experience, I am certain the incumbent bank needs to be in the loop from the get go. Firstly, the government loan needs some sort of security, normally a second mortgage.

This could impact the lender that holds the first mortgage, as the bank may need permission from the government to increase any lending. It all gets a bit complicated, but these things can be worked through if you have a clear plan in the beginning.

I have seen other government loans that have sounded great on paper, but once you read the eligibility criteria, it turns out that accessing the loan is very difficult. This scheme sounds different, but I guess you only know once you have applied, and obtained approval. Nothing is certain until the funds hit your bank account.

Other sources of funding I have seen regularly are vendor financing and private funding. Neither of these concepts are new, or that complicated.

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Security is normally a first or second mortgage. I have seen vendor financing work well for both parties before.

For whatever reason the purchaser may find it easier dealing with the vendor than the bank. It may also suit the vendor to spread out income across multiple tax years. Of course, any potential vendor should seek out advice from their accountant first.

Private third party finance is not as common as vendor finance in my experience. The cases I have seen where this has worked is where a retired farmer is looking for a better return on their money than the ultra low term deposits on offer.

As the retired farmer is very familiar with agriculture, they are more comfortable lending this money. These types of transactions are usually facilitated by accountants.

Funding for agriculture doesn't always have to come from traditional sources. A mix and match approach is sometimes appropriate.

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