Well-Structured Debt and Repayments

The importance of well-structured debt and repayments. 

As circumstances change, so too must we. Whether it be decreasing the stocking rate during a dry period, or re-structuring debt and repayments as interest rates rise, it is important to be on the front foot to make necessary changes in line with the current situation we find ourselves in. As a producer, it doesn’t matter if you’re located in Queensland or Victoria, or what type of operation you run, knowing how your debt is structured can be critical to your success. At SproutAg, we help a wide variety of producers, in particular those with mixed operations. Lower commodity prices (particularly in the livestock industry), rising interest rates off record lows and higher than normal input costs, means the need to adapt is more important than ever.  

At SproutAg, we understand that the cost of debt is important and can often be one of the higher costs in a business. However, knowing the structure of your debt and ensuring that your repayments match your cashflow is even more important. As a business owner, it is crucial to review not only your current interest rate, but also (and more importantly) the structure of your debt.  

Here are some key things to consider when reviewing your debt: 

  • Is the repayment cycle or interest timing still appropriate for your business? 
  • Do you have upcoming principal reductions? If so, do you know when they occur? 
  • Does your interest only period start converting to principal and interest repayments? 
  • Are your working capital limits still appropriate? 
  • How are you structuring your equipment finance and are you utilising Balloons appropriately to give you more flexibility?
  • Do you have a specific facility to trade livestock or is this connected to your overdraft? 

As interest rates continue to rise, your business may be in a position to pay the higher interest, however it is essential you are also able to pay for principal reductions, particularly when faced with lower commodity prices, rising input costs and the additional capital required to survive a normal season. As a result, your cashflow is critical to ensure you can meet your upcoming repayments.  


Six Tips for Re-structuring Debt and Keeping on Top of Cashflow 

  • Be more cautious when structuring your debt. 
  • If you’re buying equipment and you don’t normally use equipment finance, then you may consider equipment finance this year to improve your cashflow. 
  • If you have a principal reduction coming up or your loan is switching to principal, then get onto this early. Be really well prepared with the right information, and don’t wait until the last minute. 
  • If you don’t have a trading facility in place for livestock, consider one to capitilise on the opportunities available. 
  • Don’t pay cash for equipment if you’re then going to have to extend your overdraft. 
  • Get organised. In a rural property market that may not be as hot in certain areas, it could be a great time to put in place a pre-approval for those acquisitions in the future (don’t wait). 

Livestock Purchases and Instant Assets

Opportunities for livestock purchases, refinancing conversations and discussions around succession have been very topical across the SproutAg offices this month. 

Following a strong Summer and Autumn, many livestock producers are taking advantage of the falling commodity prices and enquiring about livestock finance opportunities. While there is still uncertainty in the sector about when livestock prices (particularly cattle) will reach the bottom, there are still many producers who are seeing the falling prices as an opportunity to build up heard numbers while prices are favourable. In addition to the falling commodity prices, many livestock producers are also enquiring about livestock finance as a solution to meet their working capital requirements for 2023.  

Across the Country, we’re continuing to see interest rates rise to curb inflation. As a result, our team have been facilitating a number of conversations around refinancing whole of bank loans. When comparing interest rates between banks, we’re currently seeing upwards of a 1% difference across the board. This difference is a timely reminder that having a conversation with your bank or lender about interest rates and re-financing can be of great benefit to you and your operation in the long-term. Speak with our SproutAg advisors to find out more about the refinancing options available to your operation.   

For any family farming operations, it’s important to consider and start to put in place some safe-guards and strategies within families as children in their teenage years approach the end of their schooling. With many of our clients having teenage children, the team at SproutAg have been completing a significant number of succession ready services. These services are critical to help current leaders of a family farming operation set up, lead and articulate a long-term strategic succession plan.  

Cash Flow and Instant Assets 

Following the announcement of the 2023-2024 Federal Budget, the team at SproutAg have seen an increase in ‘last minute’ equipment finance enquiries. This increase is a direct result of the changes to the instant asset write off scheme, that finishes as of June 30, 2023. The new budget now offers instant asset write off for purchases between $1,000 and $20,000. The change from the Federal Government has come about with the aim to increase cash flow in businesses turning over less than $10million. The changes as announced in the budget are no unlikely to cover many machinery purchases in the future. With an increase in interest rates, clients have been using equipment finance to assist with their working capital requirements. This year, with rising input costs and lower commodity process, it is critical that producers don’t get caught with a lack of cashflow later in the calendar year.  

A Second Opinion Never Hurt

Seeking out a Second Opinion on Your Banking 

In a market where interest rates are continuing to rise, spending time to analyse the true cost of your business’s finance and compare against alternative options can be difficult, however is a necessary tactic. When it comes to articulating costs and fees, each bank has their own way of approaching a conversation with their client. The language used in these conversations can often be confusing and ambiguous due to the financial jargon used. As a result, it can be hard to understand the true cost of your debt, finance or loans when comparing alternative finance options.  

At SproutAg, we offer a comparison tool that factors in every cost associated and allows our clients to develop a deeper understanding of their true cost of debt. This tool has been designed to give you more visibility, as interest rates are often a lot higher once you factor in all the associated fees.  

Every bank uses their own language when talking about interest rates and associated fees, making it confusing to understand what they’re referring to. Some of the jargon used to describe fees and interest rates across different providers may include: 

  • Unused Line Fee. 
  • Line Fee. 
  • Facility Fee. 
  • Margins (not all margins are the same). 
  • Annual Fees.
  • Negative margins.
  • Package Fees.
  • Base Rates.
  • Reference rate.
  • Corporate Rate 
  • BBSW. 
  • BBSY. 
  • Higher Rate interest. 
  • Different rates between facilities (different rates for term lending and overdraft lending). 
  • Difference rates for various term Loans. 
  • Bill Roll Over Fees. 
  • Variation Fees. 
  • Establishment fees. 


So, if you’re someone who’s hesitant to review your finance because it is too difficult, we encourage you to take the time and compare “apples with apples” and gain a second opinion!  


Debt Advisory Services 

At SproutAg, we know that debt is a great tool for any business to use for growth (when managed well), and based on our analysis we believe that Australian farmers don’t review their banking often enough. * Over the course of a generation, we believe that the average Australian farmer or farming business can save at lease 450k, by reviewing their financial facilities every three years, compared to a farmer or business that is not. Of course, the cost is not the only answer and part of banking that you should analyse, other equally important factors are:  

  • Structure. 
  • Repayment Terms. 
  • Qualilty of your manager. 
  • The Banks/ Providers track record. 

*Based on a $3million loan over 30 years and assuming a 0.5 reduction for the life of the loan, in comparison to a farming business that does not review their banking. 

For more information, please see our Agrifinance guide and talk to your local SproutAg adviser about our debt advisory services. 

Harvesting Legacy: Affordable Farm Succession Planning for Long-Term Prosperity

Harvesting Legacy: Affordable Farm Succession Planning for Long-Term Prosperity

As interest rates rise again and long-term financial planning is more important than ever, let’s look at what you need to think about if you want your farm to go onto the next generation. 

Many family farms have been around for generations, and are the central influence on the values, purpose and history of a family. While you may want this legacy to continue, it’s important to start thinking about succession planning early and understand your farm affordability.  

When we work with a family at SproutAg, there are some key questions that we need to look at to begin helping you with your succession planning:  

  • Does your family want the farm to continue onto the next generation, and is the next generation prepared for this? 
  • What can the farm afford to pay existing owners and non-working family members? 
  • What lifestyle do the existing owners require post-retirement and how much money is needed to fund this?  
  • How much can the farm actually afford and what is a sustainable debt level for you? 

 We often see that the family leaders or existing owners are not clear enough around their intentions and desire to ensure that the family farm continues onto the next generation, or haven’t considered long-term planning for this transition. This is based on their own core values and is up to each individual family, with no right or wrong decision. It is really important that the family starts to assess “farm affordability” in a sustainable year in year out scenario. This means understanding the maximum debt that the farm can take on to remain sustainable while being able to run efficiently.   


So, how does my family’s farm affordability affect me?  

Existing Generation: Get Advice on Farm Affordability Early

SproutAg recommends you seek guidance from a professional to understand your farm affordability using a range of different tools, as this will help you, as the existing generation running the farm, to understand what you can and can’t do financially. You also need to know what you want and the type of lifestyle that you require into the future if you are to exit the farm partially or completely. During this process, SproutAg will run audits of five years of cashflow on your personal expenditure so that you can properly understand your own expenses outside of the business to identify what this lifestyle would cost you. This can take several meetings to help you align your financial planning with your long-term goals, however this is vital for understanding farming affordability and effective succession planning. 

Next Generation: Be Part of the Team & Understand What’s Expected

 If you are the next generation set to take over the farm (i.e. your parents are currently running it), it is just as important for you to understand the farm affordability so you can make an informed decision on what your future might look like. Circumstances may mean that current stakeholders are being compensated at a higher level than is sustainable, where ultimately the farm has to be sold in years of lower commodity prices or rainfall. This can be devastating to the family if the whole intention was to retain the farm in the family. As the next generation, you need to be able to have clear insights into your farm affordability and how to run the farming business at a sustainable level so that you can continue it on. 

Involve Non-Working Family Members & Help Them Understand Farm Affordability

 At SproutAg, we find that often the non-working family members on a farm can feel quite negative towards the next generation taking over the property. In reality, there are usually a lot of challenges that come with gaining equity in the farm such as tenure, inability to sell and often debt to compensate australian white suffolk conference family members. Once the non-working family members have a robust understanding of farming affordability and see that the financial position is often not as strong as originally perceived, it can help them gain a greater understanding and perspective to improve family relationships.  

Cash and Working Capital are King

Cash is King in 2023! 

As you’re probably already feeling, overall profits and, in particular, cash profits, were not as strong as predicted for most agribusinesses last year. Despite rainfall levels being fairly good in 2022, rising input costs and some agriculture commodities tracking backwards meant a hit to the market. While every client, farm and operation are different, 2023 is the year where cash and working capital is King! 

What we are generally seeing across the market is that planning for the year has been pushed back. This is a result of the overall unprecedented cash profit capacity of 2023, driven by factors such as a later than normal harvest and many clients taking longer breaks off work than usual over the Christmas period, particularly being the first Christmas in many years not impacted by Covid. This month’s article will provide you with useful information about cash planning for 2023, and some key focus areas that are we are concentrating on with our clients that might help you too. 


  • Cash flow forecasting system – it’s time for a change.

It’s time for a review of your cash flow system and processes. Is your current system working well for you and appropriate for what you now need? If not, it might be time to update or change it.  

Think about who and what is contributing to your resources and remember that cash flow can quickly become negative when not all working members of the family are contributing to the cashflow. 

When you are trying to forecast your cash flow, remember that most forecasts change constantly so the ability to have a rolling forecast that adapts from month to month is critical. A good way to keep track of the changing forecast is by diarising this in a business calendar and establishing a reference forecast for the year ahead.

Ensure that the working capital for the farm is getting you the right return on investment, and at the right time. If you have a major capital program with a longer payback, there is a risk of it getting delayed, so ensuring you have a higher return on investment project with shorter payback is critical and can help you with forecasting. 


  • Financing and Banking Payments 

One of our key focuses with our clients is reviewing their current payment schedules and amounts. Balloon payments in particular should be reassessed with current interest rate rises, and if necessary, you should look into seeking extensions or restructuring your loan where possible. Plan to go to the bank just once this year and set the right limits from the start. This is important to ensure any additional expenses or potential rises are included so that you have the right working capital limits all through the season. 


Even if you have cash in the bank, having the capacity to preserve more than you think you need is critical to not getting caught short later in the year. We are seeing this trend across a lot of clients, with more and more machinery that is usually paid in cash being financed instead, which preserves cash flow rather than being stuck later and not being eligible for loans. 


Take the time to review all your finances as you plan for the year, ensuring you have more working capital than you need in this very inconsistent market with consistently rising rates. This includes looking at your current payment schedules, and potentially spreading your payments out longer if you have the ability to pay it back. Changing to interest only payments could be an option to improve your cash flow this year too if you can, rather than operating on principal and interest. 


  • Machinery Capital Planning Tools 

Machinery can be one of the biggest expenses that impacts your cash flow. Taking a proactive approach to planning your upgrades and replacement to equipment in a cost-effective way can prevent you getting caught out when you can’t afford it. SproutAg has a Machinery Capital Planning Tool which can help you determine what is strategically required in the next three years and assist in your proactive planning. You can also assess your return on investment and decide the best option for you with our Contracting or Ownership Comparison Tool.


Another way to get on top of your planning is to compare the usage of your machinery to industry benchmarks and understand the overall effectiveness of your equipment to make informed decisions.  


With so many changes happening and predicted to happen in the financial market, it’s important to prepare and plan your cash flow, which might look slightly different than previous years. Most importantly, be flexible in your approach as the industry, the economy, and predictions will constantly change, and remember – cash is king! 


If you have any questions, please reach out to your nearest SproutAg adviser.