Chapter III
Seasonal repayments: matching the loan to the cash
If your income comes in at harvest or on progress claims, twelve equal repayments may not suit you. Here is what the alternatives look like.
Most machinery loans assume steady monthly repayments. Many real businesses do not earn that way. A cropping operation might bank most of its income in a few months. A civil contractor might wait on progress payments. Seasonal or irregular repayment structures try to line the loan up with the cash.
Common shapes
- Seasonal. Larger repayments after harvest or a main income period, smaller or no repayments in between.
- Annual or half-yearly. One or two big repayments a year instead of monthly ones.
- Step-up. Lower repayments early while the machine begins to earn, rising later.
- Balloon. Smaller regular repayments plus a lump sum at the end.
A simple example
Suppose a business plans to pay $24,000 a year toward a machine. Monthly, that is twelve payments of $2,000. A seasonal structure might be two payments of $12,000, one at harvest and one six months on. The yearly total is the same at $24,000 (2 × $12,000).
But the interest is not the same. Interest is calculated on the balance outstanding, and with fewer repayments the balance stays higher for longer, so the total interest cost is usually somewhat more. Any lender can show you the difference in dollars. Ask for it.
Seasonal repayments do not make a loan cheaper. They make it fit. Fit has real value, but so does knowing what it costs.
The trade-offs
| Structure | Upside | Watch out for |
|---|---|---|
| Equal monthly | Simple and predictable | May strain cash in lean months |
| Seasonal or annual | Aligns with income | Larger lumps; a poor season hurts more; interest cost may be higher |
| Step-up | Easier start | Higher repayments later |
| Balloon | Lower regular repayments | Large amount owing at end |
Plan for the bad year
A seasonal repayment is only as reliable as the season. Before agreeing to a large annual payment, ask what happens if a frost, a flood or a drought takes the harvest. Hold some cash back, consider crop and machinery insurance, and ask the lender about their process if you struggle to pay. Many lenders have a process for customers in financial difficulty, though business loans are not always covered by the same consumer protections as personal ones. General help with money problems is covered at MoneySmart.
Who offers these?
Availability varies. Some lenders specialise in agriculture and understand seasonal income, while many mainstream products assume monthly payments. You do not need to accept the first structure presented. If you want to explore options for your own situation, you can make an enquiry here. Terms are subject to lender approval.
Common questions
Are seasonal repayments more expensive?
Often the total interest is somewhat higher than with equal monthly repayments, because the balance stays higher between payments. Ask for the total cost under each option.
Can earthmoving businesses use seasonal repayments too?
Sometimes, depending on the lender. They are most common in agriculture, but some lenders consider other seasonal businesses.
What if I cannot make a big annual payment?
Contact the lender early. Lenders have hardship processes, and early contact usually gives you more options.
Next in the guide: Chapter IV: GST & tax basics
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