Banks are narrowing, but options are widening. Learn how smart transitional finance is reshaping farming opportunities.
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Having spent most of my career in Rural Finance with a major New Zealand bank, I was firmly of the view the best way to fund a farming business was through a mix of bank debt and farmer equity. While I had some exposure to alternative capital sources, they were rarely used, typically reserved for distressed assets or situations where traditional funding wasn’t available.
Growing up on a farm, I always had a strong desire to own one myself. This goal sparked a deep interest in understanding the financial pathways to farm ownership and helping others do the same. Supporting farmers achieve their business and family goals became the most rewarding part of my banking career.
However, as bank regulations tightened and risk appetites narrowed, I became increasingly frustrated by the inability to support clients with strong growth plans that didn’t fit the bank’s criteria. Stepping away from banking five years ago gave me the opportunity to help farmers raise equity and explore new funding options. Since joining NZAB 18 months ago, I’ve focused on helping farmers access alternative capital, what we often refer to as transitional debt, to support growth and succession in ways traditional banking can’t always accommodate.
It’s worth noting that most of what NZAB does is still with the main banks. But increasingly, farmers are demanding other forms of capital that banks can’t or won’t provide under today’s regulatory settings.
This experience has opened my eyes to the value and opportunity that transitional capital brings to New Zealand agribusinesses.
What Is Transitional Debt Capital?
Transitional debt capital is short to medium-term funding designed to support farming businesses through periods of change, whether it’s expansion, succession, diversification, or recovery. It’s more flexible than traditional bank lending and can be tailored to suit the unique timing and cash flow of a farming operation. It’s important to note transitional capital is not necessarily about distressed situations, many farmers have strong growth plans that sit outside current bank appetite can and use these options successfully.
Why It’s Valuable in Today’s Banking Environment
Many farmers are finding that their businesses no longer fit within the increasingly narrow criteria of mainstream banks. In fact, many of these transactions are the type of lending that banks traditionally supported, but capital regulations now limit their ability. Whether it’s tighter debt servicing ratios, sector exposure limits, or strategic shifts, traditional lenders may not support the next phase of a farm’s journey, even when the strategy is sound.
