Saying “No thank you”
Young farmers will be better off if they decline offers of farm succession based on them borrowing an interest-bearing farm bank loan. Their retiring parents and the farm will be safer too.
The inclusion of potential bank debt problems on top of fire, flood, drought, commodity prices and government policy, can be destructive to any farm family. I changed
GBAC from a Chartered Accountancy firm to a farm debt consultant once banks were deregulated. They were promoting “asset lending” – loans that depended on sale of the farm, rather than farm profits, to repay the debt.
Debt enriches banks
Succession planning debt enriches banks, impoverishes young farmers and puts farms at risk. Serious lateral thinking by experts familiar with farming and bank loans will tailor a safer alternative for those who want to keep the farm in the family.
Passing on farm debt is rarely beneficial, so rather than refinancing debt to the youngsters, every endeavour should be made to clear all mortgage debt first, so the younger generation can begin with a clean slate. It is nothing like as hard as is thought.
Personal experience
When selling my Merino breeding farm to buy the beef cattle property that had been settled by my great-grandfather, the asking price was many times higher than what I had expected. That was due to a recent nearby sale at a price an agent called “ridiculous”. I could not have afforded interest as well. So I devised a plan that I could afford. It involved minimal external debt and it worked extremely well for my relative-vendor.
Good succession planning avoids the need to call in a farm debt consultant when the bank has appointed receivers to run the farm. The last thing any young farmer needs is a debt problem that leads to farm debt mediation, the forerunner to potential foreclosure and sale of the farm.
Avoiding mortgage stress
Bank debt is offered by banks because it converts farm revenue to bank revenue. Better to keep the money in the farm’s saving deposits and avoid the mortgage stress.
Greg Bloomfield
