The very best way to turn farm debt into profit is by having some of it written off by the bank.
It was one of the NSW Rural Financial Counsellors who was referring work to me some 30 years ago who first pointed me in the right direction. Then with a bit of digging I discovered what should have been obvious.
We all know that the fruit shop throws out bad fruit and the bakery throws out stale bread . What I had never thought about was what moneylenders did with loans that go bad. I wondered what would make a loan go bad. Default by the borrower was one way. Default by the lender might be another
Of course banks are making billions today, so losses on 5% of their loans that” go bad” are well and truly covered by the massive profits they earn on the other 95%. When I pressed them really hard on business, farm home and credit card debt I found that they would write some of the debt if they had good reason to. My first write-offs related to Swiss franc loans that grew with exchange rates. After months of work one bank made a very large concession to settle the debt. Then I was approached by a couple with a $20,000 credit card debt they could not repay. After some persuasion the card company kindly wrote off $11,000.
Debt converted to profit is usually debt that should not be there at all. It is a question of identifying it and convincing the bank that it will cost it a lot more than it is worth to recover it. For example, if the amount of debt that has been manufactured by the lender is $500,000 but the lender will likely lose $1m in the process of trying to collect it the bank would be better off doing the right thing and writing it off.
Back in the bush I worked for some months on large a farm loan and found that in the end the bank was happy to write off 20% of it so the borrowers could refinance elsewhere. The farmers made more money that way than they had in the previous five years of farming.
GBAC Advisory has had 50% written of for a grain grower and 100% for a city based business. Of course it is not simple. Moneylenders will fight with their last breath to squeeze another dollar out of their borrowers. Big banks are a lot better than fringe lenders who might break your legs as part of the recovery process. Our Votergram campaigns in Parliament helped bring on the Royal Commission. But big banks led by directors with no morals at all have just been given penalties, whereas anyone else would be put in gaol for the amounts they have stolen.
However, our firm has now had 40 years of negotiating write-offs. Quite a few lawyers and many shysters have followed us into the “bank negotiator” field. Some leave the borrowers worse off in the long run. That particularly applies to farm loans because city based lawyers or brokers who get into it frequently have no idea of why the farm debts were in trouble in the first place. Often they just consolidate loans into one place which can be the very worst option for a borrower who is battling.
Some banks do fight on, determined to keep every precious dollar they can extract, but persistence pays for borrowers. Some bank CEOs, on the other hand, are really good and when confronted with dishonest practices within their bank move quickly to write of the amounts dishonestly obtained.