Having a straightforward process to follow to get your business loans approved is essential as producers face an ever-changing lending environment.
The Lender Ready Program, supported by MLA and the Agri-Business Development Institute (ABDI), is providing practical support for producers to successfully finance better business management and growth.
Here, Lender Ready facilitator and ABDI Director Gordon Stone shares five key steps to take now, ahead of the new financial year, to ensure lending success in the current lending climate.
1. Plan early
“Producers tend to underestimate the time, energy and support needed when preparing their loan applications,” Gordon said. He recommends allowing six months’ lead time to prepare for loan applications – so if you’re planning to do anything with lenders in the first six months of the financial year, it’s important to start sooner than later.
2. Prepare a clear business plan
“Once you’re clear on your plan of attack, the first step is to start developing a business plan,” Gordon said.
He said there’s a double benefit to this:
- It helps you become crystal clear on your plans – the why, what and how – and it means those plans are clearly set out and written down.
- It also gives lenders confidence as they can see the detail of these plans to help their risk assessments.
3. Get your finances in order
Financials are pivotal to lending assessments.
“Producers must be able to comment on any changes from past to present financial position, as well as forecast their future financial potential,” Gordon said.
Be prepared to discuss why any changes have occurred, which could be due to drought, or other minor or major changes in the nature of the business.
Whatever the circumstances, the reported financials must build on the past and present to help forecast how the next three to five years are expected to play out.
4. Consider climate risk
“In order for lenders to diminish their risk when lending money, they look for clients who demonstrate diminished risk around areas such as climate, sustainability and also succession,” Gordon said.
Climate risk and sustainability measures are increasingly risk factors which lenders assess.
Climate is one of the more complex issues, but it’s still critical for lending risk assessment, management and mitigation considerations.
“It’s also equally a business management and business growth risk, as climate variability is so pivotal to individual businesses throughout the whole agribusiness sector,” Gordon said.
5. Polish and propose
“It’s important that lenders see the most professional and polished proposal as possible for the loan deal, as that increases lender confidence in the proposition,” Gordon said.
This includes a plausible explanation of any planned changes to a producer’s business direction – an explanation of why they’re changing, how it’s going to work and how it’s going to contribute to their enhanced profitability.
SEASONAL ACTION PLAN
Sign up to the next Lender Ready Program at abdi.com.au/lender-ready-program to learn how to set yourself up for effective financial relationships and grow your business.
Visit MLA’s Climate Hub at mla.com.au/climate for practical tips and tools to help you manage your climate risk through the winter months and beyond.
Access ABDI’s free e-book library at abdi.com.au/free-reports for more advice on developing your farm business plan.