Property borrowing advice for young farmers

Such was the experience of Ben Weber, Senior Relationship Manager, ANZ Corporate Agribusiness, Wagga Wagga, when he spoke to the 2022 MerinoLink Conference attendees, in Wagga Wagga.

"It is difficult for people from our generation, and I am one of the young generation and I had high hopes of buying into the family farm at Ganmain when I moved to Wagga six years ago," he said.

"Land was $1500 an acre then, now it is probably $5000 an acre so that ambition went out the window.

"So I think I will stick with banking for now."

But Mr Weber did not want to discourage young people with a burning ambition to own their farm and took some time to present his advice.

"There are two ways in which banks will look at farming operations and the ability of someone to purchase the farm and to take on the debt to do so," he said.

"A lot of people are in the position where they are lucky enough to have family guarantees or where Mum and Dad can leave some equity in their properties to buy it so that's the really obvious one."

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But what can you do if you don't have family backing or even a sufficient deposit for a modest sized property?

"The first thing you can do is to get some good advice and if you are getting it out of the bank get someone who knows banking to give you some advice about what can be borrowed effectively," Mr Weber said.

"Different banks have different parameters in the way they lend money and so if you get knocked back by one bank it doesn't necessarily mean you will get knocked back by another."

Mr Weber said one of the points that the borrower needs to consider - is this the right bank for me?

"There is no reason why you can't talk to more than one bank," he said.

"They other thing I would say if you do get knocked back by three or four different banks then maybe what you are proposing isn't going to work.

"I'm not saying that is definitely going to be the case but if you keep on getting knocked back and it is from different banks each time, then potentially you need to go back to the drawing board and work out what you are trying to do and how you are going to achieve it."

In terms of what information the banks want to have presented to them, Mr Weber said it is different for all the banks, but good quality financials, good quality personal information on your experience in farming and a credit history that the banks can refer to and see how those debts were repaid, will be something all will look at.

"That ability and willingness to repay the debt is one of the first things we look at, along with the character of the people who are borrowing the money," Mr Weber said.

"And when they look back over the cash flow of the business, they will want to know - does it have the historical ability to service the debt?"

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Mr Weber did acknowledge lack of debt history and lack of farming experience would make it problematic for the young borrower.

"If you don't have any history and you haven't been a farmer before that makes it really difficult," he said.

"You might need to rely on quite a big cash deposit or some off-farm income to support the farm in the initial stages

"It is about creating the narrative and selling yourself to the bank effectively."

Mr Weber did make the point that open and honest and frank conversations with the bank are imperative.

"There is not much point in trying to hide things because they will come to light," he said.

"Know what you want, know that it is doable and then have everything in place ready to go so that the experience is as good as possible.

"It can be that you still don't succeed with that approach, so you have to return to the drawing board and try and get some more cash equity or support from somewhere else."

Vendor finance is another option and one that is used widely.

"It has the potential to be used by some people and in saying that you are effectively borrowing the money off the seller of the farm," he said.

"That is another way of getting in the door of a smaller operation."

But, Mr Weber said it is really difficult if you don't have a lot of backing; so he advised to get some good assistance, get some good financial acumen, get some good advice and start the dialogue with the banks and talk to other people who have done it before.

"It has been done many times in the past, but with high property prices at the moment it might appear to be difficult," he said.

"But in the 70s and 80s, they probably thought their property prices were really high and interest rates were really high."

It is always a daunting thing to try and get your foot in the door, so just ask the questions and start your journey, he advised.