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How to Balance Farm Debt and Business Growth

Striking a balance between farm debt and business growth can be a tricky situation to navigate. 


Much like a catch 22, it’s often the case that you can’t grow your farm without taking on further debt, and you can’t reduce your debt by adding to it. 


Many farmers come to us with this exact problem.


How do you grow a multi-million-dollar operation you can pass down to future generations, without passing on the mountain of debt you borrowed to acquire it? While there is no one-size-fits-all solution, there are a few strategies available that can help.


In this short article, I’ll walk through some of the strategies used by some of our clients, as well as point out some important points to factor into your decision making.


To learn all about this in a one-hour Live Web Event, attend The Farm Debt Destroyer on the 22nd of February, 2023 at 12 PM. Join special guest speaker, Olympic champion and now CEO of Generation Life, Grant Hackett and I as we explore the different scenarios that surround this exact question. 

Let's say you want to buy more land

In order to grow your business, you require funding, which is not always readily available from cash flow, particularly if you require a large amount. This scenario often means you are required to take on debt to grow.


Perhaps it’s in the form of a Term Loan to buy more land or maybe you use other overdraft facilities for working capital, such as Livestock Finance, where security from your farm is not required to do it. 


Keep in mind that this can come at a higher interest rate.



Of course, overdraft debt can be utilized for working capital purposes and then the term type debt, long-term debt, can be used to purchase that additional farm.

The Most Important Factor Is The Serviceability Of Your Debt

When it comes to borrowing to purchase more land, you need to make sure you can service that debt in any situation that might arise. 


Although it’s impossible to predict the future, you can plan for the worst-case scenario.



So What Do You Do?

Make sure you’re giving yourself scope for obtaining additional debt down the track, should you need it, so you’re not cutting things too fine.

Say for example you get into a situation where you go through a dry period, and you’ve used all the possible debt you could take on and you can’t borrow anymore – you’ve stretched yourself too far. 

Having a bit of fat in the system for when things get dry is really important. 

If you need to save feed or you’re short on cash flow for other purposes, making sure you can balance that before taking on any more debt is an important first step.

So, as we say, farm debt is required for business growth, but we need to make sure that we do our sums, do our cash flows, talk to our bank about it and make sure we’ve factored in risks and mitigations. 

On the 22nd of February, 2023 at 12 PM, we’re hosting a live web event with special guest speaker, Grant Hackett, Olympic Champion and now CEO of Generation Life. 

During this event, we will be exploring solutions to reduce your farm debt, build intergenerational wealth, and transfer it across to future generations. 

To learn more, click here.    to 


In Conclusion

When we’re looking at these sorts of things, it can be good practice to sensitise the interest rate to a higher rate than it currently is, just to make sure you can pay it off or keep paying it if interest rates rise in the future.


One thing I often say to our farming clients is, before you look over the fence, look within your own fence first.


Are you fully productive now? Is it possible to spend money on your existing property and infrastructure to improve the productivity of your current farm?


The only time I would consider looking next door first is if an opportunity arises that’s not going to come by again any time soon.


That could be the sale of the adjoining property next to you. Obviously, when it comes to business growth, an opportunity like that is worthwhile pursuing


As we said at the beginning, there’s really no one size fits all to how to balance farm debt and business growth. Everyone is different, everyone’s situation is different.

It’s for these reasons alone that I recommend getting advice and talking to your trusted advisors.

To read our other articles, follow this link.


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