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Invest in your breeding stock and look after the health of your animals with a livestock loan.
The health and quality of livestock are important factors for most New Zealand farmers, crucial to ensuring the success and profitability of their farming operation. If you’re a New Zealand farmer who needs to purchase breeding stock or cover veterinary fees to ensure the health of your livestock, you may need to access financing from a trusted lender. This is where a livestock loan can help.
What is a livestock loan?
A livestock loan usually refers to a loan to help New Zealand farmers improve the quality of their breeding stock. This type of financing gives farmers the funds they need to do the following:
- Buy new livestock
- Re-build stock numbers
- Cover the cost of animal health-related expenses
However, the term livestock loan (or livestock finance) can also refer to an agriculture loan where you can use your livestock as collateral for the loan. You can use the borrowed funds to buy more livestock, to refinance an existing loan or to cover the cost of other farm-related expenses.
Livestock loans are available with fixed or variable interest rates and you are able to structure repayments in a way that reduces cash-flow pressure. In most cases, interest on this type of finance is capitalised (added to the loan amount), and you won’t need to repay the loan until the stock you purchase are sold or refinanced.
Loan terms typically range from a few months up to a few years.
How can a business loan help?
A business loan can allow you access to the funds you need to improve your stock numbers, increase the quality of your breeding stock and boost the profitability of your agricultural enterprise. Livestock loans are available from a limited range of New Zealand lenders, most of which offer specialist products to suit the agriculture sector.
However, there are several other general business loan options available to suit the finance needs of New Zealand farmers. From lines of credit and overdrafts, to equipment finance and specifically tailored farm loans, there is plenty of choice available. To make sense of the loan options available and to work out which one is right for your needs, you may want to speak to a broker who specialises in agribusiness banking products.
Benefits of a business loan for livestock
The following are some of the reasons why you should look at a livestock loan:
- Crucial asset. Livestock are the lifeblood of tens of thousands of New Zealand farms. In fact, your livestock could be your most important asset, so taking steps to ensure the quality, health and number of your breeding stock could be essential to your farm’s survival.
- Use your livestock as security. These types of loans allow you to use your livestock as security, meaning you can access equity to purchase more livestock, cover veterinary costs or fund other farm expenses.
- Variable and fixed rates available. Depending on the lender you choose, you may be able to access a fixed or variable interest rate on your livestock loan.
- Repayment flexibility. Many livestock loans either require interest-only repayments for an initial period or simply add any interest that accrues to the overall loan amount and only require repayment once you have sold or refinanced your livestock. This loan structure provides flexibility for farmers and reduces the risk of cash-flow problems.
- Protect your business. Another benefit of livestock finance is that you don’t have to sell your livestock to cover any cash-flow shortages. Instead, you can access the funds you need to cover the costs of running your farm while at the same time still maintaining ownership of your all-important livestock.
How to compare loans
There are several important factors to consider when comparing livestock loans:
- Interest rate. You can get a loan with either a fixed rate or a variable rate, and you will need to compare interest rates across a range of lenders to get a better idea of how much your loan will cost. Remember when comparing loans to make sure that you’re also comparing apples with apples by looking at loans with similar features.
- Loan fees. Read the fine print to familiarise yourself with any upfront or ongoing fees that apply and the effect they will have on the total cost of the loan.
- Loan terms. Generally speaking, livestock loans are available with terms ranging from three months to three years.
- Repayments. Does the loan have an interest-only repayment period to help you manage your cash flow? Alternatively, is interest on the loan capitalised so that you don’t need to repay it until a later date?
- Review process. Many livestock financing arrangements undergo regular reviews by the lender, usually every 12 months. Find out what this review process involves and what happens if the terms of your loan change.
- Loan amount. Make sure you’re aware of any minimum and maximum limits that apply to any loan you are considering.
How can I increase my chances of being approved?
Whether you’re applying for a livestock loan or another type of business loan for your farm, there are a few simple things you can do to improve the chances of your loan application being approved:
- Research and compare. Compare a wide range of agricultural loans to decide which type of loan is right for you. A broker can help you assess your financing needs and find the ideal loan for your situation.
- Read the fine print. Make sure you’re aware of all the eligibility criteria before you apply for a loan. These can include age requirements, loan limits, security requirements, loan-purpose requirements and even the type of farm for which a loan is available.
- Prepare a comprehensive application. Make sure you provide all the information and documentation a lender requests in order to process your application. This may include prior tax statements, financial forecasts, cost estimates and more. Your broker can help you compile all the relevant information for your application.
Frequently asked questions about livestock loans
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