Farmers all over Australia carry substantial debt along with their livestock and crops. Often it comes from buying the farm from the family. We tend to find that inter-generational transfer of farming done without bank involvement works best. Banks make huge profits by lending farmers money at substantial interest rates and large charges to buy farms. That money is then paid back into the banking system by the seller at a far lower interest rate and without the extra charges that go with a loan. That yields bigger profits than your best season’s crop.
Decades ago when moving from sheep to cattle and buying my own place for a lot more money than I had, I arranged a 20 year interest-free loan to purchase a family farm from a relative. The trade-off was that he could continue to live in the main homestead, while we would live in a workman’s cottage, for as long as he liked. He enjoyed that for 7 years and we enjoyed his company experience and advice. Then he moved out and we had a superb homestead and the farm to ourselves. In 20 years we had paid it off. My Chartered Accountant brain was happy. We built into the loan agreement provision to cope with droughts, floods and other disasters. Every 5 years we had to ensure that a quarter of the debt had been repaid. In between we could defer the odd payment if an unusual event arose. It was a strain to pay it off but it worked well. The thing about family loans in passing down a property is that firstly the older generation does not need a bucket of money all in one go and secondly it cares deeply about the younger generation and will understand any unexpected loan repayment issues far better than any bank.
Many farmers who have used bank finance to buy their farm or add another block, even buy stock, report problems with the bank in hard times. Around Australia we have just suffered devastating bushfires, drought and floods. In 2011 the live trade suspension spelled disaster for many cattle breeders from which they struggled to recover for years. Predatory banks saw an opportunity to load up already indebted farmers with more debt then charged extortionate penalty rates of interest as payments could not be met. Penalty interest made it even more difficult to meet repayments so debt grew and grew so that eventually the bank could sell the farmers up and gift their friendly receivership firms a few hundred thousand dollars in fees paid by the farmers in the process.
Standard practice for many farmers in such a position is to desperately flog the farm in order to meet loan payments and try to ignore threatening letters from the bank. This causes massive stress on them and their families and makes the bank as angry as poking sticks at unfriendly bulls does. Far better is to deal with the underlying problem which is excessive debt aggravated by abnormal circumstances. It was a Rural Counsellor in Dubbo NSW who set me on the right path. One day after referring another of her clients to me she remarked “If he’s got noxious weeds don’t let him treat them. They devalue the property and discourage the bank from foreclosing. Most farmers who have a beef with their bank inflate the value of their property. That just encourages the bank to sell them up. Leave it as run down as possible then negotiate a partial debt write-off and refinance them elsewhere.” That clever lady taught me a lesson that has benefited farmers in every state and territory of Australia whether in farm debt mediation or not. What I then learned from that was that money lenders write off debts just like fruiters throw out the fruit that goes bad and bakers sell off cheap yesterdays stale bread.
So when you have a beef with your bank don’t back off any more than this black bull would do. But be prepared to crack the whip and let the bank know that you, the customer, are in control. This guy was very friendly from birth, but I never moved him on foot without a whip in my hand. That is a good way to handle your bank too. There are ways to make that easier which I will discuss some other time.
Over the decades I also discovered that when I reported dishonest banks for malpractice to every one of the 225 Members of Federal Parliament, that led a storm in the boardroom, action by authorities or a Royal Commission. None worked well for uncaring bankers sticking pins into troubled farmers. There are plenty of good bankers out there and in my next blog I will talk about getting to them.