Cheap agricultural loan rates from the Regional Investment Corporation jump almost 1.5 per cent today, but remain much cheaper than mainstream farm interest charges.
The latest six monthly review of RIC's 10-year variable rate means borrowers with drought-related, farm investment or farm business start-up loans will pay 4.52 per cent - up from 3.04pc.
Interest rates on plantation loans for the forestry sector, introduced after the 2019-20 bushfires wiped out large tracts of timber reserves, rise from 2.62pc to 4.07pc.
Latest lending figures show individual RIC customers saved an average $27,800 in interest payments last financial year.
However, only about 60pc of applicants for a federal government-backed concessional loan have been approved for funds since RIC established almost five years ago.
Since its inception in July 2018, the investment corporation has approved $3.1 billion in loans and completed contract settlements on $2.8b to 2819 customers.
While RIC's new February 1 rate - based on government bond rates - was a distinctive jump, chief executive officer, John Howard, noted the specialist farm sector lender continued to be way cheaper than commercial lending trends.
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Agribusiness rates are typically several points above home loans which, in turn, are higher the Reserve Bank of Australia's official cash rate, currently at 3.01pc.
Unlike commercial banks which followed the RBA with almost monthly rises during 2022, RIC has altered its lending costs just twice since interest rates began rising in May last year.
By way of comparison, its loan costs have risen a total 2.21pc in that time, while the RBA's base cash rate has lifted eight consecutive times, by a total 3.1pc.
Commercial agribusiness lending costs vary significantly depending on enterprises and commodities involved and a farm's debt risk profile, but typically may be double the RBA rate.
The RBA's next official cash rate announcement is due next week.
Financial sector observers have been evenly split on the likelihood of an interest rate rise to 3.35pc after the February 7 meeting.
Interest saving
Mr Howard said RIC loans, which offer interest-only repayment terms for the first five years, provided longer periods of rate budgeting certainty between rate adjustments, while also shaving customers interest payment costs.
"This has enabled farmers breathing space to set up, invest, recover and prepare for future risks, including natural disasters," he said.
However, RIC's concessional loans are not open to everybody.
Only farm sector family enterprises or individual customers who can demonstrate a business need are approved, notably those which have experienced significant business disruption caused by unexpected climatic or market setbacks.
Farm sector borrowers can apply for up to $2 million, but a RIC loan must be written in tandem with a commercial lender providing at least as much matching funding at commercial rates.
Given multiple lenders are involved, loan settlements can take up to six months, or longer if complex partnerships or documentation clarification is involved, although Mr Howard said RIC's own loan processes took less than 60 working days.
In total, almost 4550 potential borrowers have submitted applications since 2018, seeking almost $5b for needs ranging from drought fodder purchases to funding herd or flock rebuilding and farm balance sheet support during periods of business adjustment or innovation.
Biggest borrowers
Drought-related loan requests totalling more than $4.1b have accounted for about 80pc of RIC's applications in the past four and a half years, while farm investment initiatives have sought $250m.
NSW farmers and ag sector businesses make up the vast majority of RIC customers - 1588 of its current or retired borrower base.
Loans to Queenslanders have totalled 554, Victoria 293, South Australia 280, and West Australia 100.
About $220m was lent in rebuild loans specifically for northern Australian pastoralists caught with huge stock and property losses after the unprecedented 2019 floods in outback North Queensland.
Just over 80pc of all RIC borrowers have mixed grazing and cropping enterprises, or are stand alone beef or sheep producers.
Loans to mixed farming enterprises have totalled $1.8b - almost twice as much as the next biggest borrower sector, beef cattle.
Who's in, who's not
Lifestyle farmers, commercial aggregations and unviable businesses do not qualify, and successful RIC borrowers must spend more than 75pc of their time working in their farm enterprise.
To meet RIC's lending criteria customers must prove they have been in need of discount loan funds following a notable financial impact on their business.
A loan must be worth no more than 70pc of their asset security.
AgriStarter Loan customers who are setting up new farm or sharefarming businesses must have three years on-farm experience before applying.
"It's fair to say if many of our customers had not had access to these loans they may not still be farming today," Mr Howard said.
"That would also mean regional communities would not be sharing in the benefits of their participation in the industry.
"The broader intent of the government's policy in responding to market disruption or natural disasters in the agriculture sector is to maintain and build a whole regional and rural ecosystem."
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