NARELLE GRAHAM: John Howard is the Chief Executive Officer of the Regional Investment Corporation, and he has been at the drought forum this week. John Howard good afternoon.
JOHN HOWARD: Hi Narelle, how are you?
NARELLE GRAHAM: I'm well, thank you. Is it correct that RIC loans will only cover half of a farmer's debt?
JOHN HOWARD: Yeah, part of the eligibility criteria and there's a range of them, is that we can't be more than 50 percent of the total debt that a farmer would actually have as part of their portfolio, so we can do up to a maximum of $2 million, and a maximum of 50 per cent of the total debt that they have.
NARELLE GRAHAM: Does that mean that a farmer needs to borrow money from elsewhere and be in debt to another financial institution and then go to the RIC loans scheme and try and get that debt covered?
JOHN HOWARD: Correct.
NARELLE GRAHAM: Right.
JOHN HOWARD: So a big part of it is in putting together this type of product, what the government has recognised is where those that are in financial need is part of the assessment piece, and a big component of that when you're providing a concessional loan, of which most people are refinancing their commercial debt, is that they're actually in a position and have debt elsewhere and we're coming in to help with lowering that cost of capital burden. But not to replace all of that, we'll only do up to 50 per cent and up to a maximum of $2 million.
NARELLE GRAHAM: Okay. Thank you for that because it's been really difficult to get clarification from people on that, so it's really nice to hear it from the horse's mouth as it were. Is there a RIC loan - because I know there are various things available - is there a RIC loan available to farmers who are leasing their land; that's something that's come up on the show too; that they might be leasing, they're starting out in farming, they might be leasing the land off of a family member or maybe somebody who is not family and but they still need to be, they're still in debt. Is there an RIC loan that covers that?
JOHN HOWARD: Yes so for new entrants or those that are starting out we have an AgriStarter loan product. So within that it's either for people that have been operating in the industry but are new to establishing their own farm enterprise, or it also covers in succession planning. When people are starting out it is recognised that they mightn't actually own the land themselves but they're able to share farm or agist, or some other mechanism in place that we'd be able to actually help fund that. But again, we can't be more than 50 per cent of the debt and one of the other obstacles that comes into play is that there needs to be security backing for our loans as well. The same as any other normal banking type product.
NARELLE GRAHAM: And is the interest rate on all of the RIC loans 5.18 per cent?
JOHN HOWARD: Correct. yeah, the methodology of how our loans are established, and renewed every - they're updated every six months - is the same for all our loan products.
NARELLE GRAHAM: Right. John Howard is on your radio, Chief Executive Officer of the Regional Investment Corporation. So what is the length of time for a loan; is it two years, that's what -
JOHN HOWARD: No.
NARELLE GRAHAM: No, okay. So what is it?
JOHN HOWARD: No, all of our loans are a ten-year loan term with the first five years of that interest only, and the second five years principal and interest, however in that second five year period with principal and interest, a third of the loan is paid off during that period of time generally is what we put in place, which therefore means two thirds needs to be paid out at the end of that ten year period. So a ten year loan, five years interest only, five years principal and interest.
NARELLE GRAHAM: And who sets the interest rates because I know it's not you, John?
JOHN HOWARD: Yeah, no, it's part of the mechanism when we were put in place by the government and it's a calculation that's based off the ten-year bond rate plus a portion to cover the operating cost of the RIC so that is all formulated and provided, that methodology is provided to us from the government.
NARELLE GRAHAM: And as I said at the outset, since the scheme has been going, 3400 low interest loans through the RIC scheme, around $3.6 billion has been approved. That's within the past seven years. Have you got any indication you can give us as to how much has been knocked back?
JOHN HOWARD: Not off the top of my head, no. But, look - we're not there for everyone. And there's clear eligibility criteria firstly from, things like we've touched about before we can't be more than 50 per cent of the loan product in total. They must have commercial debt. Must show in financial need. Need to show a two-year impact of a drought, doesn't need to be two-year actual but there could be, you need to show a two-year impact. So there's that eligibility piece, but the other key component is the financial side of things. So showing that you've got a viable entity and able to repay the loan and that you've got sufficient security cover to be able to support that loan application.
