Alternative lending and finance for newcomers to agriculture

Farmers needing finance beyond the traditional banks are chasing alternative options, with non-bank lending debt growing 400 per cent in 12 months.

Non-bank lending in Australian agriculture is booming, with a more than 400 per cent increase last year.

Data from the Reserve Bank of Australia shows rural debt by pastoral and other finance companies jumped to $4.531 billion in 2023, up significantly from $830 million in 2022.

While rural debt by all banks remained the dominant source of capital, accounting for $113.985 billion, the figures show a trend of expanding opportunities for those seeking finance beyond the traditional banks.

RBA data showed in 2019 non-bank lending by pastoral and other finance companies sat at more than $2.2 billion, before dropping to $887 million the following year, before numbers climbed to the present-day figure of $4.531 billion.

Daniel Hipwell is a 34-year-old first generation producer, based at Kerang in Victoria producing small hay square products.

When he and his wife Claire were looking for finance to purchase their first farm, they had a two year-long struggle with the traditional banks to get the green light to buy.

“It’s tricky when you don’t have a lot of equity,” Mr Hipwell said.

“We started with ANZ when we were looking at buying the property, that was all yes, yes, yes, to begin with, but it was a long two-year process. Things changed along that time with interest rates … the answer was always no, wait another 12 months, it was a lot of no.”

The Hipwells eventually secured finance from Thera Ag Finance, who Mr Hipwell said were “much more open to the position we were in”.

“They saw the strong business case we were in for our cash flow position and the growth of our business,” Mr Hipwell said.

“Seeing the case we had, they were much more forgiving with the other metrics we weren’t meeting for the other banks.”

While the Hipwells are paying a higher interest rate than they would with a traditional bank, Mr Hipwell said being able to secure finance was encouraging for their enterprise, and the future of agriculture.

Merricks Capital founder Adrian Redlich established the non-bank lending enterprise in 2007.

“One of the key things you need to provide funding for is where there’s a scarcity of capital in the economy, and having creative solutions in terms of capital where there is scarcity,” Mr Redlich said.

Adrian Redlich, Chief investment officer (CIO) of Merricks Capital in Melbourne.

“The regulator APRA is forcing banks to be extremely fixed on the interest cover … and farming is very seasonal and commodity prices are cyclic, we’re a group with a view on a three to four-year cycle. But the bank is looking at last year’s cash flow,” Mr Redlich said.

“We’re not necessarily for the $2 million farm acquisition, we’re most aligned with groups where they’re trying to add value, such as wanting to expand production, and may want to buy neighbouring properties, or put in more water infrastructure.”

Sprout Agribusiness chief executive Troy Constance said about 80 per cent of clients he deals with are seeking alternative finance options after limited success with other lenders.

“The farmer comes to us, they want to buy the farm next door, they already have a few million in debt and are going to have more, and they talk to us about what are their best options,” Mr Constance said.

“The industry has really changed … the access to credit isn’t as strong as it was, and colliding with that farms have become bigger and more sophisticated.”