The Federal Government established the Regional Investment Corporation in March 2018 to administer concessional farm business loans. This began with Farm Drought loans, and in 2019 was expanded to also include AgRebuild loans for farmers affected by the North Queensland floods.
The AgRebuild loans are very tightly targeted, but eligibility for the Farm Drought loans is broader than many might expect.
On 7 November 2019 the Prime Minister announced the extension of the scheme to include eligible regional small businesses, and further interest rate concessions.j
Loans for working farmers
The loans are available owners of farms that are Australian citizens or permanent residents – although it is important to understand that the farms can be held through companies or trusts.
Not all members of a farming partnership must work on the farm, but at least one person must contribute at least 75% of their labour to the farm business under normal circumstances, and at least one partner must rely on the farm for their income – so the loans are not available for corporates.
Terms and pricing
As of 1 February 2020, the ten year loans are currently at a variable interest rate of 2.11%, with no application or other fees.
Farm Investment loans are interest only for the first five years. AgRebuild loans are interest free for the first two years, then interest only for the next three years. After 1 January 2020, new and existing Drought loans, and Small Business Drought Loans, will be interest free for two years.
Support of the current lender
Although the loans can be used to reduce bank debt, they can’t be used to completely replace it – normally a farmer must keep 50% of their debt with a “commercial lender.”
It’s worth highlighting that RIC will often agree to take second mortgage security. This means that in practical terms the commercial lender’s security cover (i.e. loan-to-value ratio) can significantly improve, and so they might be quite happy about RIC becoming involved!
One other point is that even if the current lender isn’t prepared to confirm support, it may still be possible to get a conditional offer from RIC. With a much better LVR to offer the incoming lender it may be easier for farmers to secure a refinance.
Drought loans are up to $2m, available to farmers across Australia, which can be used to:
- Prepare for drought or recover from the effects of drought.
- Pay down debt.
- Invest in productivity or water efficiency measures.
Farmers will need to provide a copy of their drought management plan.
Flood loans (AgRebuild)
The AgRebuild loans have a much tighter eligibility criteria. They are for farmers affected by the flooding caused by the Monsoon Trough from 25 January to 14 February 2019 North Queensland.
The AgRebuild loans are for a maximum of $5m, but rates and other terms are the same.
There are some key differences to the drought loans:
- As noted, the loans are interest free for the first two years.
- RIC might waive the requirement that 50% of the debt stays with a commercial lender – but only in cases of “extreme hardship,” and will be assessed on a case by case basis.
- The loans are only available until 30 June 2020.
Small Business Drought Loans
Small Business Drought loans will provide working capital assistance of up to $500,000 for small businesses that directly provide primary production related goods and services to farm businesses in drought-affected communities.
There are some restrictions:
- RIC is not a lender of last resort and will not lend unless it is satisfied that the farm or business is viable and has capacity to repay the loan.
- RIC will require a drought management loan for drought loans.
- As above, the ongoing involvement of a commercial lender is required, although this can be a new lender in some cases.
For eligible farmers the RIC loans can be a great option, and it is well worth checking availability. There is a lot of useful information at www.ric.gov.au, or you can contact the author on 0404 885 062.