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An agribusiness line of credit is a type of revolving credit line specifically designed for farmers and other agricultural businesses dealing with seasonal fluctuations. A predetermined credit limit is negotiated at the outset, giving farmers easy access to funds during times of poor cash flow, without having to reapply each time. Interest is only charged on the amount drawn down at any time, giving farmers the flexibility to have a pre-approved agribusiness line of credit ready to use should the need arise.
All industries can experience periods of seasonal demand and be affected by unexpected fluctuations. Businesses involved in agricultural production, like farming and fishery – collectively known as agribusinesses – are significantly more prone to seasonal fluctuations than any other Australian industry.
Agribusinesses are an Australian icon, providing food and agricultural products for local communities and the broader population, with plenty of surplus for export. In fact, around half of Australia's enormous landmass is devoted to agricultural activities, with the vast majority being Australian owned and operated.
Agribusiness is inherently volatile, though, with a disproportionate reliance on ideal weather conditions compared to other Australian industries. Forever at the mercy of the environment, agribusinesses can be struck down by pest outbreaks, bushfires and prolonged weather conditions like droughts, as well as international commodity prices. For this reason, farmers and other agricultural business owners can experience great difficulties meeting debt repayments during periods of poor cash flow, necessitating the introduction of specialised financial products to suit Australia's agribusiness industry.
Agribusiness is undoubtedly a specialised industry and one at the forefront of the Australian economy. A 2004 parliamentary inquiry found a disturbing decline in the number of bank branches in rural and remote areas of Australia, citing 750 bank branch closures in regional areas between 1993 and 2000.
In response, the banking industry stepped up to improve its range of specialised agricultural financial products, with many banks maintaining or increasing their presence in rural areas and offering convenient banking methods including 24-hour phone, online and mobile banking.
In addition, independent lenders have burst onto the scene, filling the gap once created by Australia's big banks and offering a range of financial products and services to agribusinesses that take into account the unique circumstances of the industry and individual businesses alike.
Agribusiness line of credit products are a prime example of a financial product that has evolved to solve unique cash flow problems caused by the seasonal and cyclical nature of agribusiness.
Agribusiness line of credit products are offered by a variety of financial institutions, from big banks to smaller, independent lenders and niche lenders solely servicing the agricultural industry. With a wide variety of products available, it is essential that farmers compare their options when choosing any agribusiness banking products including a line of credit.
As a guide, the following standard features could apply to agribusiness line of credit products:
When comparing agribusiness loans and line of credit products offered by different lenders, consider the following:
When processing an application for an agribusiness line of credit, lenders will primarily consider your financial situation, including the equity held in any assets offered as security. Lenders may ask to see bank statements and tax returns to assess your financial circumstances and are likely to check your credit history. Some lenders will also request a business plan including cash flow forecasting to determine the future serviceability of the loan.
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