Avoiding the debt noose

This matter arises because many farms have in this era grown from small family operations into small-medium corporates.  But often the financial control has not kept up with this change? You can fight change or adapt and go with it.

Well-structured and timely debt can help these small corporates to grow. Insufficient working capital or poorly structured debt may pit the bank against the borrower in a situation where no one wins. Invariably the bank has the upper hand so this ends up costing the borrower dearly.

In past times, a borrower worked with a bank manager who was a pillar of the community. Around him were his ‘tigers’who took diary notes in meetings and converted the talk into action.

Today the banks’ number crunchers have determined that computers, credit scoring models and young staff are cheaper to run than old guys. In this new era a customer’s history with a bank is assigned no value; that’s why sharper rates are often given or offered to potential customers and withheld from existing, loyal customers.

This week I had an enquiry from a farmer whose bank told him they want to be repaid – and right now or else they will sell him up. The next day he received from the very same bank an item of addressed mail – part of a marketing campaign – that said, “It’s tough out there for businesses just starting up; that’s why we’ve put together a market-leading package of products and services designed to give a new business a huge kick-start.” 

Unfortunately this bank was dishing out the wrong type of kick.

There are very good bank managers who understand credit and the business of farming. 

The problem is they are paid to sell their employer’s products.

www.rural-finance.co.nz 

• Stu Smith is principal of Rural Property Finance Ltd, which has no ties or allegiances to any particular funder.