Agricultural non-bank lending has experienced rapid growth, with estimates suggesting it has increased by at least 10% annually since 2020, reaching loans worth around $5 billion and potentially exceeding $15 billion in the next five years.
Characteristics of Non-Bank Lending
- Fast and flexible, often accommodating specific farm debt, revenue, or seasonal circumstances not aligned with mainstream bank requirements.
- Lenders may target borrowers seeking less than $5 million or less than $500,000 over 12 months to three years.
- Specialist financiers are available to assist with larger sums, such as $10m or $15m for land acquisitions or turnaround projects.
Non-bank lending encompasses a range of services, including:
- Short-term livestock buyer/trader finance
- Seasonal funds to grow or harvest crops
- Finance for land purchases and infrastructure upgrades
Private credit lenders have gained traction, despite charging higher interest rates than their big bank peers. However, they offer a valuable alternative for farmers seeking flexible and fast financing options.
Investor Support
Increasing financial backing from investors, including overseas pension and private wealth funds, has contributed to the growth of non-bank lending. Investors see agriculture as a chance to diversify their capital base and benefit from strong demand for money in the sector. Farming has historically shown high repayment rates, with total Australian agricultural debt averaging around 15% last year. This makes private credit lenders attractive to investors looking for reliable returns.
Overseas Experience
Non-bank lending has been a mainstream business trend overseas, with the US providing as much as 90% of asset investment loans across all industries and 65% in Western Europe. By 2028, the global private credit market is expected to be worth almost $US3 trillion.
Challenges and Opportunities
While non-bank lending has its advantages, it also presents challenges. Financial literacy among borrowers is a concern, and the varied nature of farming requires access to multiple financial options. However, for farmers seeking flexible and fast financing options, non-bank lending can be an attractive alternative.
Caution and Due Diligence
Farmers must be aware of the less regulated nature of non-bank lending and exercise caution when signing loan agreements. It is essential to conduct thorough due diligence and understand the terms and conditions of any loan deal.
Expert Insights
Industry observers, such as Merricks Capital’s Geoff Davis, recognize the potential of non-bank lending in the agricultural sector. “We can often help solve a bank customer’s problem,” he said. “We become a short-term solution for a scaling-up strategy or other immediate funding needs.”
FarmCap’s Jonathan Weinstock notes that banks tend to focus on business history and conventional lending solutions, leaving room for private credit lenders to fill the gap. “In many cases, banks won’t even get out of bed for a loan under $2m, but we can still make a good margin from lending $250,000,” he said.
The Future of Agricultural Non-Bank Lending
As the agricultural sector continues to evolve, non-bank lending is likely to play an increasingly important role. With investors seeking diversification and farmers facing changing market conditions, the demand for flexible and fast financing options is likely to grow. However, it is essential to address the challenges associated with non-bank lending, such as financial literacy and regulatory oversight. By understanding the benefits and risks of non-bank lending, farmers and investors can make informed decisions and navigate the complex landscape of agricultural financing.
“Agriculture is an attractive asset class, not only due to its strong performance in times of market uncertainty but also because of its ability to provide a stable return in a low-yield environment.”
Agricultural non-bank lending offers a promising alternative for farmers seeking flexible and fast financing options.
