If you are starting out in the agricultural industry, financing your rural farm can be a difficult and confusing process. You will have to overcome some obstacles and jump through hoops to reach your goal of having your own income-producing farm, but do not let this discourage you from taking the first steps on your journey to becoming a farmer.
Where do I start?
Knowing where and how to start the financing process can go a long way to making the application process easier and quicker. Follow the steps outlined below and you should find that it is not as daunting as you first thought it to be.
Draw up a business plan
A farm is usually used for business purposes, especially if you’re looking to apply for aid from any agricultural or asset finance companies in South Africa. A business plan will help to show the bank that you are serious about your venture and is also required to be approved for finance. Your business plan should include the following information.
Location of the land: The location of your farm should be suitable for the crops you are going to produce or the livestock you are planning on keeping. If the location is rural and quite far from other commercial farmland, you will need to explain why you have chosen this land.
What equipment and assets you will need: Running a farm takes numerous pieces of equipment, assets and hours of hard work. Your business plan will need to include detailed lists of all the equipment and assets you will need and explanations as to why these are necessary.
Market positioning: This is vital information for any business plan. You will need to show the bank or financial institution what your business’s advantage is over existing farmers, what you will do to create a demand for your product and whether or not you will deliver a better quality product or service.
Check your credit status
After you have drawn up a business plan, you will need to check your credit status before sending the business plan and application to the bank. The bank will do this beforehand but if you are prepared ahead of time, you will be able to explain any discrepancies to the bank.
You can contact TransUnion or ITC for a full credit report and if you see any irregularities or inaccuracies you can contact the credit bureau to dispute and rectify these. Being able to explain a bad credit report will help the bank to see that you are taking a proactive approach to bettering the situation.
Have your documents ready
There are certain documents you will need to give the bank when you apply for finance for your rural farm, which include the documents below.
- Banking details and balance sheet information.
- Contact information, including registered address.
- Director/Member/Trustee details.
- Details of the property or assets you wish to finance.
- Proof of access to land
- Identity document or passport if not a South African resident
Once you have these documents at the ready, you can submit them along with your business plan and await approval from the bank.
Know down payment requirements
It is important to know what down payment requirements your bank may have, especially for small producers or first-time farmers. Rural farmers often start out as small producers and your down payment requirements may be less than those of an established farmer.
Knowing how much you will be required to contribute as a down payment will help you plan to save towards this, increasing the chances of you getting the finance for your farm. Banks look favourably on applicants who can contribute a decent down payment amount, as this decreases the risk of the borrower in the eyes of the bank.
If this is a possibility, you should try to provide collateral to the bank. This can be in the form of an asset, such as a car or house, or the property itself that you are wanting to purchase. This is known as a secured loan and is popular among young borrowers who may be seen as high risk by the banks.
Your collateral can be repossessed by the bank and sold in order to make back the money they lost when investing in your venture and also puts the bank at ease while you are repaying your loan. It is a good idea to do this, specifically for rural farmers – these farms tend to be less successful in the first year of business than more commercial farms, making them a high risk investment for banks.
Applying and being approved for finance does not have to be a difficult process once you know what to provide the banks with. Being a rural farmer can be a rewarding job, allowing you to provide income to yourself and boost the economy of the society in which you are living.