Financing the herd rebuild no straightforward path

Agriculture finance experts say today's funding discussions are very different to what they were six to 12 months ago for two key reasons: bank's exposure to drought-impacted borrowers and post Royal Commission.

Very strong tightening bias has been the outcome of the heavy scrutiny placed on banks.

Ian Robinson, from rural agribusiness specialists Robinson Sewell Partners, Wagga Wagga, said the first point of call for most livestock borrowers was generally the bank and the feedback had been "shock and awe" situations as initial discussions unwind.

The current state of play could herald a paradigm shift about how to secure funding for beef and lamb operations, he said.

How a producer re-positions to consider funding options moving forward will be critical to longterm success.

Being "presentation ready" is now more critical than ever, both Mr Robinson and Queensland beef consultant Ian McLean said.

It's applicable regardless of where you are going to seek funding, they said.

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"It's about putting risk mitigation in place - demonstrating to potential lenders you view seasonality as a normal part of business and you have systems in place to deal with it," Mr Robinson said.

"Then cash flow projections need to be put forward at a technical level. And they have to be stress tested to ensure they are realistic and achievable and the servicing capability is there for what you're asking for.

"Producers shouldn't rely on lenders to work through that, it should come from borrower themselves."

Mr McLean, Bush Agribusiness, advised producers to be proactive.

"Take the bank your cash flow forecasts and tell them your plans. If you surprise them or they have to start ringing you, you're probably going to be in trouble," he said.

Mr McLean said producers should start by looking at their reserves in terms of Farm Management Deposits, undrawn debt and personal capital.

"Look at the Regional Investment Corporation and Queensland Rural and Industry Development Authority loans and other recovery loans and understand what they are and what the pro's and con's are," he said.

"Bringing dollars from off-farm back in shouldn't be ruled out but it should be very carefully thought out - these funds are an important part of retirement and succession," he said.

"Budget your cash flow for the next three years. What does it look like, what is the shortfall going to be and when? You can also use this base scenario to model against different scenarios open to you."

He also said producers should use their network or peers and friends.

"This is an important aspect as there are a lot of people in the same position," he said.

"Look across your district and ask whose land and stock always seems in better condition or whose hard-won wisdom and opinions you value - seek them out and go and have a chat."

Mr Robinson said it was fair to say the credit appetite among banks was currently erring on conservative side.

"They are playing a lot more hardline in terms of credit flexibility and availability," he said.

"Producers need to consider alternatives and fortunately more and more non bank lenders are coming into the market in the livestock space.

"Borrowers need to make themselves aware of how funding relationships can dovetail into existing bank arrangements."