Banks are narrowing, but options are widening. Learn how smart transitional finance is reshaping farming opportunities.

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.

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.

Transitional debt capital offers an alternative path forward, providing:

• Agility: Funding aligned with seasonal income, asset sales, or development timelines.
• Strategic Enablement: Capital to act on opportunities like land purchases, infrastructure upgrades, or succession plans.
• A Bridge to Long-Term Solutions: Transitional funding can pave the way for future refinancing once the business has stabilised or grown.

When Might It Be Used?

Transitional debt becomes a vital option when a farming business has a clear funding need, but the bank says no and other banks say the same. If you're in this position, it's important to know you do have options.

Transitional capital can help:

• Protect equity during succession, exit, or restructure.
• Grow equity through development, expansion, or transformation.

Real-world examples include:

• Generational succession: Releasing equity to enable smooth transitions between family members.
• Growth or land use change: Funding diversification or intensification where upfront investment is needed.
• Trading challenges: Supporting recovery when past performance limits bank lending.
• Land subdivisions: Providing upfront capital for developments that take time to realise returns.
• Timebound asset sales: Avoiding rushed sales by giving breathing room to maximise value.
• Forward selling carbon: Unlocking future carbon value to support current needs like succession or growth.
• Vendor finance: A seller providing finance directly to the buyer as part of a farm or land sale. This can bridge gaps where traditional banks won’t lend, enabling transactions to proceed while giving the buyer time to refinance or build equity.

In all these cases, transitional debt provides the flexibility and strategic support that traditional lending often cannot, especially when timing and value preservation are critical.

Why Specialised Advice Is Essential

Transitional capital isn’t one-size-fits-all. The structure, terms, and timing must align with the farm’s operations and long-term goals. That’s why specialised advice is essential.

You need someone who understands both the financial instruments and the farming context, someone who can:

• Assess the viability and risks of transitional funding.
• Structure deals that protect long-term interests.
• Navigate lender relationships and future refinancing options.

Final Thoughts

Transitional debt capital is more than just funding, it’s a strategic enabler for protecting and growing equity. In a sector where timing, resilience, and adaptability are everything, having access to the right capital at the right time can make all the difference.

At NZAB, we continue to place the majority of lending with the main banks, but the landscape is changing. Farmers are increasingly seeking solutions that banks cannot provide, whether due to regulation, appetite, or timing. Transitional capital bridges that gap, enabling good businesses to keep moving forward

Understanding and leveraging transitional capital, supported by expert advice can unlock new opportunities and set your business up for long-term success.

How NZAB Can Help

At NZAB, we help farmers access capital beyond the main banks—through private credit, non-bank lenders, and equity partners. Whether it’s for growth, succession, or a first investment, we structure smart, strategic deals matched to farmers’ needs.

With a strong network of farmer investors, offshore lenders, high net worth individuals, and private equity, we keep farmers in control and position their businesses for long-term success.

✅ Over $450 million in transitional debt transactions completed
📈 $200 million currently in the pipeline

We have deep experience in structuring and delivering solutions that meet the unique needs of farming businesses. Whether you're protecting equity or unlocking growth, we’re here to support you through change.

If you’d like to discuss how NZAB can support your business, feel free to reach out:

Ray Fraser – 027 243 0025
Andrew Laming – 021 907 763

 

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NZAB, 335 Lincoln Road, Addington, Christchurch, New Zealand 8024, 0800 NZAB 12

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