No, not a formal one anyway. There is certainly ample money available to lend. Although, the ease of how it’s distributed has changed somewhat. For a profitable farm business with good levels of equity, it’s pretty much business as usual. In fact, in this part of the market the competition is as strong as ever! For example, I made a $4 mil deal this week that had an overall interest rate in the high 3% range.
However, if your agri-business is either at the margins, or looking at a large expansion though, the landscape has definitely changed. Banks may still approve these deals. Having said that, the lead times will be much longer, and you will need to jump through more “hoops” to obtain unconditional approval.
On the bright side, valuations for agricultural properties have held up quite well. There has also been a good number of sales in most districts over the last few years. New valuations are increasing accordingly, as the valuer can now use more comparable sales in their reports. Banks are also still willing to do internal valuations. Even so, some banks are phasing this out in response to the Banking Royal Commission report.
Another factor is the RBA (Reserve Bank Australia) cash rate. The RBA and the media make this figure (currently 1.5%) is readily accessible, and most people would have heard about it. I venture to suggest, that most people think all lending is based on the RBA cash rate. This is not the case. Depending on which product the bank is using for agricultural loans, the RBA cash rate may or may not be the base rate.
Generally, the majority of agricultural loans are based on the Bank Bill Swap Rate (BBSW). This is essentially the rate that banks lend to each other. Right now, the BBSW is approximately 1.7%, whereas the RBA cash rate is 1.5%. The RBA cash rate sporadically changes, while the BBSW changes (in small increments) daily.
Whether the bank uses the RBA cash rate or the BBSW as its base rate will influence the interest rate the bank offers you. On top of that, there is always their cost of doing business and the customer margin. All of this adds up to the overall interest rate the banks offer their customers.
Fortunately, businesses can negotiate the customer margin. That is where the profitable agri-businesses with good equity have an advantage. Banks are open to negotiation, and are very interested in either obtaining new customers in this strong category, or conversely, keeping the ones they already have!
A bit of competitive tension goes a long way!