How to get a cheaper interest rate | EP 05
Farmers looking for a better deal from their bank need to be showing up with a clear budget and strategy, and demonstrating how they perform against that.
That’s the topline message from ASB’s rural general manager Aidan Gent, who joins us in episode five to talk about how New Zealand farmers can get a lower interest rate from their bank.
Gent says there are actions many farmers could take today to strengthen their position with the bank.
The first step is to have a good conversation with your banker to understand how they view your farm business.
“The worst thing you can be doing is having your head in the grass, afraid to have that conversation,” he says.
The next step is to identify risks in your business – such as exposure to interest rate movements or commodity prices – and explain how you would plan to mitigate them, he says.
This could include cost control in the near term, and balance sheet strength, hedging policies or diversification of revenue streams in the medium term.
Articulating where you want to take your business, and presenting clear budgets and financial projections, are also key, Gent says.
“What’s your strategy for your business? Do you want to buy your neighbour’s farm in five years’ time, or a bach at Whangamata, or bring your kids through the farm and, therefore, potentially bringing a 50/50 sharemilker on? “What does that strategy and budget look like? What are the parts you’re not happy with and what you might you adjust? We want to know that stuff.”
He suggests farmers spend time with their accountant, farm advisor and other trusted advisors to figure out the business’s direction, and then clearly communicate it to the bank.
If the banks can understand where you’re trying to take your business, it makes it a lot easier for them to support you, he says.
Gent says the banks also want to see how a farmer behaves – or will behave – when a downturn hits, because that’s a huge indicator to your business’s longer-term success.
All of those steps ultimately help the bank to see your farm business as less risky and, therefore, offer a cheaper interest rate.
He says once farmers have had those initial conversations with the bank, it’s crucial to then follow through on your plans over the next few years.
“There’s not much point in Beauden Barrett having the best bronco in All Blacks training if he then goes out on Saturday and gets chased down by a front rower. You have to put in that performance on the field.”
Although spending time budgeting, strategising, and analysing your business might well get you a better deal with the bank, it also just makes good financial sense, Gent says.
Useful links:
Federated Farmers Podcast Ep 3: Rural banking inquiry: 'Let's get it underway'
https://www.farmersweekly.co.nz/news/banking-inquiry-lets-get-it-underway/