It was born to help farmers' financial needs during the depths of a howling drought, but too much rain has set the scene for a new wave of demand for the Regional Investment Corporation's low cost loans.
Fast rising commercial bank loan rates also have potential to spur on requests from farmers and related agribusinesses hoping to qualify for RIC's discount lending deals.
The investment corporation's latest variable interest rate is locked in at 3.04 per cent until February next year.
That's well below typical agribusiness rates charged by commercial lenders, currently ranging between about 4pc and 6pc, and likely to climb again this month.
In fact, for most of RIC's original borrowers, their funds actually came interest-free for two years after settlement, if they applied within the first months of the corporation kick-starting its loan service in 2018.
In four years RIC has settled $3.08 billion in 10-year farm sector loans.
Initially it was swamped by approaches from producers needing extra funds to help with drought-related costs or to re-finance existing borrowing arrangements.
At the peak of that rush, the federal government's specialist lender had 2200 farm business loans approved and queued up for settlement.
Thanks to widespread rain and improved seasonal conditions in the past two years, supported by big prices for many farm commodities, RIC ended the 2021-22 financial year with just 60 loans awaiting settlement.
In the 12 months to June 30 about 1500 loan settlements were signed off.
These days lending applications are quite likely to be from young farmers seeking AgriStarter funding to establish their own enterprise, or for investment projects to help strengthen existing farm businesses, including funds for new shearing sheds, fencing, machinery or market expansion initiatives.
Preparing for drought
"At the moment drought isn't such a challenge, but a drought loan is as much about helping a farm business prepare for the next drought as managing - or recovering from - exceptionally dry times," said acting chief executive officer, Paul Dowler.
He noted this year's east coast flooding had begun to prompt loan inquiry activity.
Farmers had moved from an initial emergency recovery response to their stock, crop and infrastructure losses to calculating longer term rebuilding costs and plans.
A jump in applications was likely from coastal dairy, beef, and horticultural enterprises, including turf and flower farms which recently became eligible for RIC funds.
"Generally speaking our lending criteria is built around responding to, or preparing for, a significant event," Mr Dowler said.
"These events may be weather-related, or some other significant interruption within the industry, requiring recovery funding, such as restocking after bushfires, or perhaps a biosecurity emergency.
"It's quite possible we'll see applications from apiarists wanting to rebuild hive numbers following the varroa mite outbreak in NSW."
The vast majority of loan deals made through RIC have gone to grain belt producers with a mix of grain and sheep or beef enterprises - borrowing almost $1.2b.
Beef-only producers borrowed $590m; mixed sheep and beef enterprises, $410m, and dairy farmers $170m.
RIC loans work in tandem with a commercial lender's facility to ease the borrowing pressure on farmers who may otherwise struggle to get all the money they need from their bank.
RIC will lend half the funds required for a purchase, to a maximum of $2m.
Unlike mainstream finance offers, its interest rate does not change with the type of product being purchased, so the current 3.04pc applies regardless of whether the money is paying for a new dam, or replenishing livestock numbers, buying new machinery or buying land.
RIC's lending costs are pinned to 10-year Commonwealth Bond movements and less likely to move as much as commercial lenders' rates.
They adjust every August and February to reflect the bond rate's previous six month average if bonds have moved by more than 10 basis points in that period.
In contrast, commercial agribusiness lending rates shift automatically in response to the Reserve Bank of Australia's official cash rate, which has been on the rise since March.
Bank interest charges also vary depending on whether loans roll over monthly, every 90 days, six months, or longer, and depending on how a lender rates a customer's business risk.
However, to qualify for RIC loans in the Drought Loan, AgriBiz Drought Loan, AgriStarter or Farm Investment category, producers and regional business operators do need to demonstrate "a degree of need" for concessional loan help.
"There aren't as many stresses on most farmers' finances as a few years ago, but there are still borrowers in difficult circumstances for a variety of weather- or commodity-related reasons," Mr Dowler said.
These businesses could also be restricted by the lending flexibility a bank was willing to extend them as commercial rates rose.
RIC customers enjoy interest-only terms for the first five years of their loan, followed by principal and interest repayments for the final five years.
However, more than 80pc of RIC borrowings are still interest-free, although that grace period will revert to interest-only repayments for many in coming months, then principal and interest repayments after five years.
"RIC loans have saved farm businesses a lot of money they would have otherwise spent on principal and interest repayments together," Mr Dowler said.
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