Navigating drought loan applications

There is no doubt that drought has affected us all, in one way or another – personally and financially.

For farming businesses, access to finance is an important aspect of recovering from drought and planning for long-term business sustainability. And while there are several drought support initiatives available for farming businesses and families, the application and approval processes can be onerous and time consuming.

While there is drought support available for farming and agricultural businesses, through government loans and immediate grants through charitable organisations, there are strict processes and protocols to follow.

I recently attended a Drought Meeting hosted by Rural Business Support, and here I share my tips for preparing drought support documentation.

FIVE Insider tips for preparing drought loan documentation

#1: Future Focus: Drought loans have a distinct focus on funds being used for ‘preparing for, managing through or recovering from drought’ and one of the key assessment criteria is the need for the business to be financially viable in the long term. You may need to prove that you are facing seasonal issues rather than ‘business’ issues.

Drought loans are distinct from financial hardship payments, and there is an expectation that the drought loan will be used to restructure your existing debt, fund operating expenses to sustain your business during drought or for capital purchases/re-stocking after drought. My recommendation for agricultural businesses is to include the costs of your future plans such as machinery purchases or large capital purchases within your application.

#2: Close enough is not good enough: In the words of Fonzie, all documentation must be ‘exact-a-mundo’. There is a plethora of documents required to accompany drought loan applications (it can be up to 100 different documents and pieces of evidence) including 12 months of bank statements for each account you hold, 3 years of all financials, evidence and invoices associated with drought mitigation strategies (such as cleaning out dams) a drought management plan and recovery plan… and each must be in the exact format specified. For example, if you prepare your budgets by season, you may need to rework them to suit a financial year format to comply with the application process.

#3: It takes time: Don’t underestimate the time it will take to compile all your documentation, as well as application approval times. In my own experience, it can take weeks to prepare supporting documentation, which doesn’t include postal times if you need to source original documents from professionals such accountants or lenders. As a rule of thumb, allow for two weeks for the initial assessment followed by 40 to 45 days for full application approval.

#4: Act sooner rather than later: Even if you are waiting for rain or seasonal improvement before you can take action or get back into full production it’s important to plan ahead and go through the approval process, so you have the funds available to be released when you need them, without delay.

The Australian Government’s Future Drought Fund has committed $100 million annually (from 1 July 2020) to support Australian farmers and communities with funds used for preparation and resilience planning of drought with a review of the funding plan every four years [1].

Our recent article If opportunity is knocking, you need to be ready to open the door also outlines the need to be prepared and consideration of appropriate lending options for your circumstances.

#5: Don’t go it alone: Consider capitalising on the experience of others and using your support networks where you can. Your financing decisions should always consider more than just the money and take into account all aspects of your business including your business structure, business goals, long-term succession goals and your own personal financial and retirement goals.

What drought support is available?

The Australian Government offers immediate drought support initiatives as well as support for the longer term as outlined below.

Farm Household Allowance: This program assists farming families experiencing financial hardship with a focus on improving their long-term financial situation. The support includes a fortnightly payment for up to four years (within a ten-year period), as well as allowing farm losses to be offset against income from other sources.

Rural Financial Counselling Service: This is a free confidential service and advisers can help farmers understand the financial viability of their operations and assist with plans to improve your financial situation as well as services such as negotiating with lenders, identifying assistance schemes and assisting with applications for Farm Household Allowance.

Regional Investment Corporation: A service offering loans for farmers and farming businesses in financial need including AgBiz Drought Loans, Farm Investment Loans and Drought Loans.

There are strict terms and conditions which apply depending on your individual circumstances.

Having assisted many farming businesses with their financial goals and financing needs, I have gained an insight into the barriers that can delay access to desperately needed funds as well as the overarching financing considerations that extend beyond loan and repayment conditions.

I also have a close understanding of the far-reaching effects of drought on both business operations and personal wellbeing and have assisted many farmers with their financial and drought documentation needs to secure finance to sustain operations.

If you would like to discuss available drought support or would like assistance with drought support applications, I encourage you to contact me today on 08 8253 2906 or email info@financialservicessa.com.au.

Our 2019 article Lightening the load – building personal and business resilience also includes some tips and resources that may help you through the tough times.

Phillip Dibben is a financial adviser with Active Financial Management. Active Financial Management and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.

This information does not consider your personal circumstances (including taxation) and is of a general nature only. You should not act on the information provided without first obtaining advice specific to your circumstances.

[1] https://www.agriculture.gov.au/ag-farm-food/drought/future-drought-fund