Harvest-timed repayments: seven questions to ask before you sign
Farm income does not arrive in twelve tidy instalments. For many growers, most of the year's money lands in a few months, which is why harvest-timed or seasonal repayments exist. They can be a good fit, but a structure that fits your cash flow is not automatically a good deal. Here are seven questions worth asking.
This is general information only. Whether a seasonal structure is available, and on what terms, depends on the lender and your circumstances.
1. What is the total cost compared with monthly repayments?
When repayments are less frequent, the balance stays higher for longer, so total interest is usually somewhat higher. Ask the lender to show the total repaid under a seasonal structure next to a standard monthly one. The gap is the price of fit. You may well decide it is worth paying, but you should know the number.
2. When exactly are the payments due?
Harvest does not run to the calendar. A due date of 30 April means little if a wet autumn pushed your header work back six weeks. Ask whether dates can be adjusted, and what happens if you are a few weeks late. Also ask whether the first payment is due soon after settlement or after the first season.
3. How big is each payment, and could I survive a poor season?
Divide the annual repayment by the number of instalments. A yearly total of $30,000 as two payments is $15,000 each, which is a large cheque to write after a frost-hit year. Stress-test it. Work out your income if yields are down and prices are soft, and see whether you could still pay. If not, a smaller machine, a longer term or a mix of monthly and seasonal payments might be safer.
4. Is there a mix option?
Some structures combine small monthly payments with one or two larger seasonal ones. This can keep the balance falling steadily while still leaving room at harvest. It is worth asking whether this can be designed to suit you.
5. What happens if I want to pay it out early or sell the machine?
Check for early-repayment fees, and how a payout figure is calculated. If you plan to upgrade in three or four years, make sure the structure does not leave you owing more than the machine is worth at that stage.
6. What does the lender do if I miss a payment?
It is uncomfortable to ask, but important. Find out about late fees, default interest and how the lender handles hardship. Business loans are not always covered by the same consumer protections as personal loans, so get the answers in writing. For a general view of what to do when money gets tight, see ASIC's MoneySmart.
7. Does the lender understand my enterprise?
A lender used to cropping, livestock or mixed farming will usually understand why your income is lumpy and what a bad season looks like. A lender who only writes monthly consumer-style loans may not. Specialist agricultural lenders and finance services often handle this more comfortably, and you can ask about seasonal structures through a finance enquiry to see what is on offer. Terms are subject to lender approval.
Put your own numbers on paper
Before talking to anyone, write down your month-by-month expected income and expenses for the next twelve months, including tax and input costs. The ATO's small business pages have useful notes on timing of tax obligations, which can be a big outflow soon after harvest income lands. Better to include it now than be surprised later.
One last thought
Seasonal repayments are a tool, not a trick. They suit businesses whose cash arrives in lumps, and they ask more of your planning in return. Ask the seven questions, compare at least two offers, and make sure the person you are talking to can explain the downside as clearly as the upside.
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