Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

There’s nothing like a sporting analogy to focus the mind. I’ve enjoyed watching the cricket on free to view and the new commentary team lead by Scotty ‘‘Sumo’ Stevenson.

I’m also looking forward to the Razor Robinson era. I’m not in the Razor fan club, but I must admit I am warming to him and the fresh approach. You don’t get many “full credits” from Razor.

Often players who have been overlooked by the last AB’s coach have a second chance. The most obvious example in New Zealand rugby was the John Hart - Laurie Mains transition. Hart’s AB’s team was full of Aucklanders , whereas Laurie picked a lot of players from regional New Zealand, including Southland’s very own Simon Culhane. I was lucky enough to play alongside Simon, and he typified the Laurie Mains era of a tough, skillful hard worker with no frills.

Just like the change in regime in NZ rugby under Razor, we at NZAB are seeing a change in the interest rate market.

For farmers, this is often their biggest cost, and rates (and margins) have risen significantly in the last 18 months.

With wholesale rates bouncing around the peak, and all forecaster’s calling the peak in rates being either now or quite soon, the next phase seems more likely that it will be downwards.

However, unlike residential rates, there are no carded rates for commercial and rural borrowers. Every business is individually priced, based on credit quality and on the level of competition a farmer may bring to the table for their loan.

While some may decry the lack of a rate card in the non-residential lending market, this is an opportunity for businesses to present themselves in the best possible light to the banking market.  

The challenge is that banks need to make a profit, so have no good business reason to pass on the reduced rates. In fact, there is strong motivation in a lower volume lending market to hold margins and therefore profit as highly as possible. This is despite bank margins having been at record levels in the last reporting season.

Like the change from Hart to Mains or Fozzie to Razor, the selection criteria is different in a reduced interest rate market, under the guide of banks who need to retain margin and profit.

Those that want the benefit of reduced rates need to start thinking about how they create a “market” for their loan. And creating a genuine market for their loan is the only way a farming business will get the best possible rates.

So how do you go about creating a “market” for your loan?

Like all good markets, you need to have something that a buyer wants. In a banking sense, this means that your business is one that a new bank wants to bank (i.e. acquire as a new customer), or one that your existing bank doesn’t want to lose.

This does not mean that you need to start shopping around from bank to bank (and that can be a long painful activity), but instead, this is more about knowing how good your credit is, the things you need to do to improve it (if at all) and how well you have articulated this to your bank. In most cases all of these things are required.

Your current business performance, on farm resources, future strategy, decision making experience and skill and past financial history can be open to a very wide range of interpretation unless it has the required analysis, justification and narrative.  These and more are all factors in a credit decision that leads to either a “yes” or a “no” or a wide range of interest rate outcomes.

To complicate matters, speaking “bank” isn’t easy.

Simply handing over your financial statements and a budget for a bank to do the rest is a bit like trying to read a backline move, without having the playbook.  

And no matter how strong your business is, the bank view of your business strength and subsequent credit rating are not black and white, but a highly graduated scale.  

Do you know where your business sits on this scale and what this means for interest rates?  

Do you know what you have to do to move along this scale?

And most importantly, do you know what “competitive” actually looks like for an interest rate?

It’s no different to the player who missed selection under Fozzie, if they get fit and present themselves well for selection, they have a chance of being an AB.

And, like the player who wants to present themselves well to Razor, they will need support from specialists (trainer, skills coach, family).

At NZAB, we specialise in helping farmers present themselves in the best possible way to the banking market and have the results to demonstrate that our approach works. Sometimes, that might mean that the business isn’t yet match fit for selection so we also help with guiding those businesses to a stronger place so they can enjoy constant selection from the banks.

So the challenge is yours. Will you be a player who hopes to get selected, or will you take control, engage specialist help and give yourself the best possible chance of getting the prize?

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