There was a big shake-up in business lending during and directly following the banking Royal Commission.
I wrote on that topic a few months ago, but now another shift in the lending climate seems to be taking place.
I am seeing this when I put up new finance proposals, or when existing clients are coming up for annual review.
Loan servicing with a significant principle reduction schedule is in vogue.
Normally, agricultural loans are assessed across a 15-year term. Historically these loans rarely fully amortised over this period, there was usually a big residual at the end. After the initial analysis was complete, the loan was set to interest only, and everyone sailed off into the sunset.
Interest only is still very common, but not as automatic as it once was.
I can understand this shift from the bank's perspective.
They took a hammering in the Royal Commission on the subject of responsible lending, even though business lending has a lesser standard to adhere to than consumer lending does.
Banks are working through historical financial performance and projected cash flows with a fine tooth comb.
Nonetheless, banks are sometimes easy targets, particularly for the media if they are seen to use their market power unwisely. I am not saying this hasn't happened in the past, but there is much more scrutiny these days.
If you have ever read the full terms and conditions of a banking contract, you'll understand the safeguards - mainly for the bank - that are built into these documents.
Banks are working through historical financial performance and projected cash flows with a fine tooth comb in the present environment.
While this may seem onerous to agribusinesses concerned, there is an opportunity buried within this extra scrutiny.
It could be the perfect time to update your budgeting tools, integrating your production information with your financial data.
Though few agribusinesses have this type of integrated system in place, those that have can access up-to-date information at the touch of a button.
This data is useful for the bank, but more so for the agribusiness owner. In some ways, the benefit to the bank is a by-product, and secondary to the internal use of the information.
Some financial software has the ability to measure production as well as financial metrics.
A few of these programs have been available for many years, others are new entrants into the market.
Related reading: Agribusiness buzz in brief
They are all cloud enabled, and this allows access from anywhere - as long as you have an internet connection. Cloud computing has been a game-changer in lots of ways. More important, in my view, is the need to set up the software correctly, and access proper training.
Accountants and various advisers have specialised skills in this area.
Another benefit of setting up this type of system is access to timely reports.
A modern professional agribusiness should know its numbers back to front. In some ways, this is where the battle is won or lost.
Once you have integrated financial and production data in one place, any request from the bank will be able to be met with ease.
A bit of work setting up the system now will have enormous flow-on benefits.
As the old adage goes, prior preparation prevents poor performance.
- Details: bagshawagriconsulting.com.au
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