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Tips to make agricultural finance work for you

Agriculture has long lived at the heart of Australia’s economy.

Despite facing difficult times as a result of drought and flood, the Department of Agriculture found that the value of agriculture, fisheries and forestry production has increased by 34 per cent in the past 20 years in real terms.

As a result, it’s perhaps no surprise that working in this $66 billion industry can require expensive equipment.

Here are a few tips to keep your agri-equipment costs as low as possible.

First and foremost, it’s a tool

Regardless of whether you’re talking about a piece of machinery, such as an automatic milking system, or a tractor, all agri-equipment is ultimately just a tool.

Therefore the way you finance your equipment should be with the understanding you’re buying a tool to assist you with your business, and not funding a precious machine that has value apart from the work it can help you do.

By understanding this you can structure your finance in such a way that you only invest in equipment that contributes towards building your business.

Be debt smart

It’s important to be smart about your debt when it comes to acquiring the equipment you need, and to be mindful of farming’s often-changeable nature.

For example if you have what looks to be a bumper crop in the fields, but won’t have the funds to purchase the machinery required to get the best possible yield until after you’ve sold it, structure your loan a little differently. Take out finance that allows you to get the equipment you need now, but make a large repayment down the track after you’ve sold the produce.

Try to keep your debt as low as possible. It’s smart to have a bit of money saved away for the inevitable rainy day, but use any additional funds to minimise your debt

Make GST work for you

If you are looking to finance your equipment, structure it in such a way that you ‘own’ the loan. When you organise your financing in this fashion the equipment is then sitting on your finance sheet, which means you can depreciate them from day one. The result is that you can finance the included GST amount, and your repayments do not include GST.

If, for example, you acquire a tractor, you could structure the third payment due on your monthly repayment schedule to be the refund you get from the ATO for the GST paid on the tractor. By putting that refund to work, you could reduce your balance and save interest costs over the life of the loan.

Talk to your broker

Finally, you should stay in regular contact with your broker to ensure you are making repayments in the structure that best suits your business.

Rather than simply accepting that payments have to occur on a monthly or quarterly basis, enquire about what can be done to fit your schedule.

Your business is likely to have the most cash on-hand shortly after harvest time, when the bulk of the season’s produce has been sold. It therefore makes sense to make a loan repayment then, and ideally for that payment to be larger than the others to make things a little easier throughout the leaner months.

Use your funds to generate income and structuring your finance to maximise cash flow and minimise interest payments.

With just a little help from your finance broker, you can well and truly put your money to work.



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