Once you have a succession plan in place, it’s important to both regularly review your farm’s finances and investigate options for consolidating and reducing debt. Refinancing can free up much-needed cash and give you a buffer when times get tough.
As an example, if you’re carrying $50,000 machinery finance debt at 12% and credit card debt at 14%, and a bank is offering loans at 6.5%, it makes sense to shop around.
Refinancing may enable you to negotiate benefits including interest or principal repayment holidays of three to five years, or 12 months interest-free repayments.
When to think about refinancing
- Lower returns are putting the farm under pressure
- Factors outside your control (e.g. drought) are creating uncertainty with your existing bank
- Other banks are offering more attractive interest rates
- Succession planning requirements for less debt and greater flexibility
- You want to consolidate multiple debts
What to consider when refinancing
Firstly, decide whether you want to borrow money from your existing trading bank or from someone else. What relationship do you have with your bank? If it can’t match its competitors’ interest rates, what then?
One option is to keep your mortgage with your existing bank but take out a loan with a second bank to
consolidate high-interest debt.
Another is to approach a different bank and offer to give them all your business in return for an interest holiday.
If you face penalties on leaving your existing bank, you could consider leaving the riskier components with the first bank or paying them out with the second.
Whatever you decide, it’s a good idea to talk to a third party not affiliated with a bank to find out what options are available to best meet your needs.
If you’re seriously considering refinancing, get in touch and we’ll sit round the table and do the sums. The decision ultimately rests with you but if you want to proceed, I can work with your bank representative to ensure the transfer is as smooth and efficient as possible.