The Pros and Cons of Livestock Finance
Livestock finance is a helpful way to buy stock to take advantage of a market when you may not have the cash flow on hand. This flexibility to purchase livestock at the right time is also an intelligent way to make decisions when needed to make your operation more profitable.
There are other benefits: livestock finance doesn’t require you to put up land as security. It won’t churn up your cash flow, and it’s usually has a fast turnaround to secure, allowing you to take advantage of conditions as they happen.
Sprout Agribusiness has gotten to know just about all of Australia’s livestock finance lenders – the good and the bad – so we’ve been able to take a strong view of the whole marketplace. We’ve taken the view that livestock finance is more expensive than similar equipment financiers or banks. There are a few reasons for that; stock and station agents usually take an 8 to 15 per cent cut, dedicated livestock funders take around 11 to 15 per cent, plus you have breeder facilities (7 to 12 per cent) and trade finance (6 to 8 per cent).
With this in mind, we suggest you look out for these three factors, so you are getting the most from livestock finance.
- Hidden Costs:Many livestock finance contracts can be confusing and don’t easily show the real interest rate and fees. Some financiers will charge capitalised interest, interest on interest, which drastically increases the actual interest rate. We’re happy to review contracts before you sign them.
- What’s the actual cost: How a season pans out, or if livestock doesn’t gain weight as expected, you might find the repayment costs or the pay-back in the breeder facility makes the actual price of finance too high for it to be profitable.
- Security:Many livestock financers use an additional security clause in the background of the agreement that, in essence, gives them the right to mortgage your land if you’re unable to repay the loan.
As you’d imagine, livestock financers come and go over the years, and they often change their rates and finance costs along with their unique requirements that you need to decipher. However, livestock finance can be an excellent way to improve the profitability of your farm. We recommend before taking out livestock finance, you do your homework, weigh up the benefits with the risks, and if in doubt, speak to an expert.
Sprout Agribusiness are the experts in livestock finance. Get in touch today.