Farm Loans – How to Fund Your Farm’s Future

Do you need a farm loan? Perhaps you’re a seasoned farmer working the farm that’s been in your family for years. Maybe you’ve decided to move inland and test out your green thumb. Or perhaps you’re finally ready to set up the hobby farm of your dreams. Regardless of your motivation, if you want a farm, you’ll need to know how you’ll fund it.

So, if you haven’t already, put some thought into the concept of farm loans. Because Australia’s farmers are vital, you should have the opportunity to do something worthwhile.

Please note, specific ideas and products presented in this article may not be on offer by Monzi nor the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.

What are farm loans?

Farm loans can fit into two main categories—farms as a business and hobby farms. If you operate your farm as a business, then you may be eligible to receive farm investment loans. Hobby farms, however, may be filed under the standard home loan.

The likelihood of your desired loan getting approved will depend on several factors. For example, if you are a new farmer, how large your farm is, and how profitable your business is. Regardless, farm loans can help the aspiring farmer follow their dreams, or the established farmer to make required upgrades.

Investment farm loans

Investment farm loans are for the upkeep or establishment of a large farm. These loans, offered via the Australian government, may pay up to $2 million if you qualify. You can use the money you are eligible for, to:

  • Fund drought-related activity
  • Refinance existing debt
  • Access external markets
  • Pay for operating expenses
  • General strengthening of your business

The overall goal of these investment loans is to help increase productivity, profitability, and business resilience. If you don’t intend to profit off of your farm, then you most likely won’t qualify for an investment farm loan.

Hobby farm loans

If you don’t know what a hobby farm is, it is essentially a small patch of land that you use to establish a small farm. These farms are often for the owner’s satisfaction, without intentions of profiting off the venture.

The use of your hobby farm comes back to the owner’s wishes. Some hobby farms grow garden produce, whereas others prefer to raise a small handful of livestock. The smaller your hobby farm, the more credit providers will be willing to lend to you. As your farm progressively gets more extensive, your lender will see you as a riskier investment.

However, if you intend to use your farm as an investment, your lender will be warier about lending to you. So, before you apply for a loan, consider what you intend to use your farm for.

What makes your rural property ‘income-producing’?

When deciding whether or not your hobby farm is ‘income-producing,’ your lender will ask a few questions. Will you be using any income made to prove your loan is affordable? And, will you use and develop your property for large-scale agricultural use?

Outside of this, however, your lender will be looking through your provided documents for the following:

  • In the last three to five years, has your business produced any taxable profit?
  • Is your business activity turnover at least $20,000?
  • Is the value of your business property at least $500,000?

Ticking all these boxes, most likely means that your lender won’t permit you to borrow a hobby farm loan. You will instead have to take a farm investment loan, as your business is deemed commercial. For more information, the Australia Government’s business.gov.au website has provided a more in-depth farm investment loan breakdown.

LVR and hectares

The size of your farm may also impact what loan category it falls under. Firstly, if your land is more extensive than 100 hectares, you will most likely be considered a commercial business and will not qualify as a hobby farm. If this is the case, your loan-to-value ratio (LVR) will need to be around the 60% mark.

An LVR is a measure of how much deposit you will need to put down. In this case, if you put down a 40% deposit, then your LVR will be 60%. If you can’t meet this figure, then you will need to pay lenders mortgage insurance (LMI). LMI is a one-time fee that gets added to your loan amount. The smaller your deposit, the more LMI you will have to pay.

For a 95% LVR loan, your hobby farm may not be able to exceed 50 hectares. An 80% LVR may be available for hobby farms between 50 and 60 hectares. And a 70% LVR may be available for hobby farms between 60 and 100 hectares. The only way to secure a 100% LVR loan is to sign the contract with a guarantor. However, note that exact requirements may vary between lenders.

Farm loans for new farmers

As mentioned, the larger the farm, the more risky the venture. Yet, this is for established farms. If you have aspirations of becoming a farmer, but don’t possess anything, it may become even more difficult.

One criteria you may have to satisfy for a loan is to have the capacity to repay the loan. For many people in the farming industry, they already have a functioning and profitable business. However, if you intend to quit your job and start a farming business, the risk to the lender is considerable.

This does not mean you won’t get approved; it merely means you will have to find alternate avenues. Whether this means signing with a guarantor, providing experience in running a business, or farming experience, it will depend on your situation.

If you have grown up in a family farming business, it may be easier for you to obtain your farm than it would be for someone moving from the city. Regardless, you will have to get in touch with a lender to receive more information regarding your capacity to take out a loan.

Agristarter farm loans

If you are aspiring to buy your farm, yet are struggling with approval. The Australian government will open for Agristarter loans in 2021.

The purpose of this is to assist new farmers with buying an existing farm or establishing a new farm. This government loan will allow the recipient potentially up to two million dollars. The details of this future loan will also become available at the beginning of 2021. So, if it is something you believe is relevant to you, it may be worth making a note.

Farm equipment loans

You may use a farm investment loan to purchase new or replacement equipment to increase the profitability of your business. One of the main reasons people take these loans is to pay for operating expenses or capital.

Therefore, if your tractor breaks down, or you’d like to upgrade your milking equipment, a cash loan today may be a perfectly viable option for you. Keep in mind that if you require the loan for business equipment, you will need to provide details of your business and its performance.

However, if it’s for personal use, then you may apply for fast cash loans with Monzi from $300 to $10,000.

Industries that qualify for farm loans

Whilst not always the case, some banks prefer income derived from specific farming industries. These are typically cotton, sugar, grain, cattle and sheep. To see if your proposed lender will accept the vein of agriculture you work in, you can always give them a call.

To be eligible for a farm loan of any description, you may need up to 2 consecutive years of financial statements for your business. You will most likely also need security for the loan; if you have a house on your farm, you can potentially use this.

Farm equipment finance rates

Sometimes, it can be better to finance some of your equipment by leasing it for a certain period. Depending on the bank and the piece of equipment you choose, you can potentially get your equipment 100% financed.

You may be able to rent business vehicles, processing equipment, haul-out equipment, storage containers, and tillage equipment. One reason you may do this is if you have some equipment; however, it is not enough to match the amount of work required. Farms may have enough equipment in three quarters of the year, but when it comes to the right season, the equipment may not meet the demand.

You may be able to compare finance rates for free online. However, consider keeping on the lookout for leasing companies that allow you to lock in a reasonable rate up to 12 months in advance.

Rural home loans

A rural home loan is much like any other home loan; however, rural properties often come with far more land. The LVR to hectares comparison applies to rural home loans in particular. Some banks will have specific restrictions regarding the size of the properties they will do loans for. Others do not but may require confirmation that you will not be using the property for farming.

The bank will want evidence that you won’t be relying on farming as your sole source of income. They will most likely look through your statements to see if you have farm machinery, commercial orchards, a herd of animals or any tourism style accommodation.

In some cases, lenders may allow you up to $20,000 on the side of your primary income for activities you perform on the side. Such as having beehives to sell honey in your spare time.

Land purchasing

If you wanted to buy a patch of rural land and build a home on it, without the intention of making it a farm, you could use a home loan for this. Even if the amount of land qualifies with the lender, they may still be hesitant to lend to you. Some of the other factors that influence your chances of success are to do with the market.

If you believe you want to buy a property in the middle of nowhere, it may become difficult to get your loan approved. This is because the rural housing market can fluctuate significantly. When considering purchasing rural land, some of the things worth thinking about include how remote you are, whether there are good access roads, and whether the services are connected.

The value of your land will go up if you can get adequate electricity and water. Solar power as a sole power provider can be acceptable in some instances as can dirt roads if they are in good condition. You can consider using a postcode calculator if you are unsure whether or not your loan may get approved for the land you are looking at.

Eligibility for farm loans

Regardless of whether you own a farming business or a hobby farm, the base eligibility is the same. You will need to be a permanent resident or Australian citizen. At least 50% of your business needs to be generated by the farm. And under normal circumstances, you must be contributing at least 75% of your labour to the company.

Further, eligibility for hobby farm loans is essentially proving that you will not be using it as your primary source of income. The eligibility for farm investment loans, however, is slightly more in-depth. If you are chasing one of these loans, your farm business must:

  • Financially need a loan
  • Operate as a private company, sole trade, partnership or trust
  • Have an existing commercial debt
  • Sell into supply chains interstate or internationally
  • Be in a valid farming industry
  • Be appropriately registered for tax purposes

Government benefits for farmers

Rural living presents unique challenges, especially if you are raising a family on a farming income. For this reason, if you haven’t already, it may be worth looking into the government grants you can get to support yourself.

The most common grant is likely the farm household allowance (FHA). However, you may also be able to get a farm management deposit, drought assistance, and various taxation measures. These grants do come and go though. So, check back in frequently regarding what you can and can’t claim or file for.

Borrowing to build structures

The large majority of farms have more structures than just a house on the property. Whether it’s a shed, or three, or various silos, you may be able to borrow money so that you can build new structures. Depending on what state you live in, you may be able to claim specifically for this purpose.

For example, New South Wales has the Farm Innovation loan. There is a list of criteria to qualify as loan schemes like this allow funding for permanent on-farm infrastructure.

If you don’t have an option like this, all is not lost. You may be able to use the farm investment loan to build additional infrastructure. Alternatively, you could take a different type of loan, such as a personal loan to help get the job done.

tractor bought using farm loans

Vacant land loans

If your neighbouring farmer wants to sell off some of their land, and you’d like more space for your farm, you may want a loan for vacant land. Buying vacant land, however, can be difficult. The rules that apply to farm loans, typically also apply to vacant land.

How much you can borrow is based on the LVR to hectares scale. However, many lenders may be hesitant about approving a loan for vacant land larger than 2.2 hectares. For anything more extensive, you would most likely require a strong application and credit history.

The banks will also consider all of the other details that apply to farm loans, including location, access and your intentions for the land. If you intend to use the land commercially, you will most likely need to apply for a farm investment loan instead. Intent to build on the land may also influence your lender’s decision as if you intend to develop straight away. Your lender may view this as less risky.

Borrowing to purchase animals

The standard farm investment loan may not allow you to purchase livestock. So, if you need to increase your herd, what can you do?

Well, you could take an agribusiness loan, which would allow you to use the money for purchasing animals, should you wish. Some of these loans will even enable you to use the livestock you buy as your security. You are therefore allowing the bank to repossess this livestock if you fail to repay the loan.

Produce advance

In some instances, crops may only have one healthy yield a year. This means that if you are a produce farmer, you may struggle in the off-period. Therefore, taking a produce advance can give you up to approximately 70% of the assumed harvest value.

This means that when it comes time to harvest, you can pay the loan back. Typically, interest won’t compound on these types of loans. However, this isn’t guaranteed, so compare your options properly.

You will likely need to provide security for this loan, which can potentially be the rural property you live on. When enquiring about this type of loan, some lenders will have staff who specialise in agribusiness. This is good if you’re looking to talk to someone like-minded.

Interest rates of farm loans

It’s hard to say what makes a reasonable interest rate for these kinds of loans. As with any other loan type, you should be able to choose whether you want your interest rate to be fixed or variable.

The easiest way for you to work out which interest rate is best for you is to use a free comparison tool. Once you find one offering a loan calculator for agribusiness, it should simplify your options. All you have to do is select your security, enter your loan amount, select your state, and choose your preferred interest type.

You should then have multiple options available to you without having to go through the hassle of going to each website individually.

Farm loan repayment calculator

There isn’t such a thing as a farm loan repayment calculator. However, if you want to know what your repayments will be, you can use a standard loan calculator. These often come in handy when you’re trying to budget your month and include your personal or mortgage loan repayments.

You can find these calculators online free. All you have to do is enter the loan amount, loan term, interest rate, and repayment frequency. You may also have the option to make extra repayments if applicable.

Once you’ve entered the extra repayments, the calculator should tell you how long it will take to repay your loan. You can then play around with the settings and entered amounts to figure out whether you would like to repay more or less. Your repayments will change depending on your position in life, which is perfectly normal.

Refinancing farm loans

Refinancing is the act of taking out a second loan and using it to pay off the original. It doesn’t lessen your mortgage; people typically refinance for another lender’s better rates or loan features.

If you have a hobby farm under a standard home loan, then you may refinance your loan with ease. The same also works for agribusiness loans. It may be easier for you to refinance your farming business than it was to get the loan in the beginning. This assumes that your business is now up and running, whereas before, you may have been a start-up and deemed riskier. If you have bad credit, it may be more difficult to refinance, yet, it’s not necessarily impossible.

Business loans as an alternative to farm loans

If you would like a loan but are worried that you won’t qualify for an agribusiness loan, you may use a business loan as an alternative. If you are requiring extra cash for equipment or paying your staff, then you may be able to take out a business loan.

This would mean that you can potentially secure the farm itself against the loan. The interest rates on a business loan, however, may be different from other forms of loan as they involve a risk margin. If your lender believes that the business will be successful, then the interest will most likely decrease. If your venture is of very high risk, your interest will increase.

Drought assistance

Thankfully, there is a lot of aid that goes towards drought assistance. As this can be one of the most significant impacting factors on the success of farming, you should know you can get help. Whether you are currently dealing with drought, or the phenomenon is holding you back from buying a farm, know that you won’t be alone.

As long as you meet the eligibility criteria listed above, you should be able to claim government help in the instance of drought. At one point, you had to be located in an ‘eligible area’ to claim. This is no longer a requirement. So, if you previously were excluded from this help, it may be worth checking again to see if you can now claim.

It is also important to note that you should have a drought management plan in place. And, whilst this is a government loan, you may require the support of a commercial lender for the loan to progress.

Use a personal loan for your farm

If you need some extra money to run your farm business, and your lender won’t allow it, you can always use a personal loan. With a personal loan, you may be able to cover a variety of expenses ranging from new farm equipment to car repairs and everything in-between.

Consider letting Monzi match you to a lender. We’re Australian and 100% online. We also cut out all that terrible paperwork so that you save time and ink. If you require a personal loan, being matched to a lender with Monzi may be as easy as one, two, three.

  1. Click the ‘apply’ button and fill out your details. This includes how much you want to borrow and your personal information.
  2. Once you’ve done that it’s up to us to match you to a lender who may be able to help. If you applied within business hours, we might be able to complete this process in as little as 60 minutes.
  3. If we find you a suitable lender, we’ll pass your details to them, and they will be in touch regarding the outcome of your application.

Once the money is in your account, you can use it to do whatever you’d like on your farm.

Farm loans and Monzi

If everything on the farm is currently smooth sailing, or you’ve yet to buy it, you can keep us in your back pocket. Literally!

As we’re online-only, you can access us whenever you’d like. Alternatively, you can be our friends on Facebook, Instagram, Twitter and Pinterest.

And if you have any pressing questions, or you need help with your application. Feel free to contact our friendly team at hello@monzi.com.au.

Factor In

Costs

Two credit cards
Two credit cards

You won't use a penny to apply for our lender-finding service, but here's some costs you could expect from a lender

Loan amount

$300 - $2,000

Terms

12 months

Costs

20% upfront establishment fee

+ 4% monthly fee

Example

Loan Amount of $1,000 over 6 months repayable weekly (25 weekly repayments). $1,000 (Principal Amount) + $200 (20% Establishment Fee) + $240 (fees based on 4% per month over 25 weeks) = $1,440 total repayable in 25 weekly installments of $57.60.

Under the current legislation, most small personal loan providers don’t charge an annual interest rate (you’ll know this as an APR) %. The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate

Loan amount

$2,001 - $4,600

Terms

13 months

24 months

Costs

48% annual percantage rate

67.41% comparison rate p.a.

Example

Loan Amount of $3,000 over 18 months repayable weekly (78 weekly repayments). $3,000 (Principal Amount) + $400 (Establishment Fee) + $1,379.06 (reducing interest) = $4,779.06 total repayable over 18 months with weekly installments of $61.27.

The Interest Rate for Secured Medium Loans is 48%. The Typical Comparison Rate is 67.41% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.

Loan amount

$5,000 - $10,000

Terms

13 months

24 months

Costs

21.24% annual percantage rate

48% comparison rate p.a.

Example

Loan Amount of $10,000 over 24 months repayable weekly (104 weekly repayments). $10,000 (Principal Amount) + $5,577.12 (Interest) = $15,577.12 total repayable over 24 months with weekly installments of $149.78.

The Interest Rate for Secured Large Amount Loans is 48%. Maximum Comparison Rate is 48% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.