Growing up on the farm, I learned a lot from my father. I learned the importance of fully feeding stock, the value of investing in good genetics, but most importantly, I learnt that a crescent spanner was the only tool you needed in a tractor or motorbike toolbox. (Other than a good knife... which we never seemed to have either, but that's another story.)

I mean, we had socket sets, a few actually! All missing the ratchet handle, the 10mm, the 14mm and the 17mm. We had screwdrivers too, all with rounded tips. But when you were in the middle of the job, the crescent could replace a set of spanners, the missing sockets, hammers and even a screwdriver if you tried hard enough. The point was, you keep it simple and have a tool that adjusts for the job.

Before 2017 that’s what banking was. A crescent spanner. A tool that adjusted to fit the job. Then regulation hit, and it was decided that banking would no longer be a crescent spanner, it would now be a set of ring spanners. But annoyingly, they would also now only go up to 17mm. That’s fine most of the time, but the old crescent could go up to an inch or more.

So, now the bank decides what size bolt you are and offers you the ring spanner. If the size changes, then you need to apply for another size of spanner. Sound familiar? But don’t go over a 17mm, or you’ll be stuck. The machine will remain broken. There is no bigger spanner.

 We need more competition then?

We’ve been hearing a lot about needing more competition in banking as a way to improve access to and cost of capital. A way to ‘add spanners’ if you will. Don’t get me wrong, you can never have too many 10’s and 12mm’s in the set, but the reality is that what we need in Agri now is the 18 to 25mm spanners. That’s what makes the difference. That gets the machinery moving again.

So, competition isn’t what we need. Competition gets you a cheaper spanner in the size you already have, or maybe one that lasts a bit longer. But it doesn’t expand when things go wrong, or when you have the opportunity to take on ‘bigger gear’.

What we need is specialist capital that can handle those bigger bolts. We need capital that recognises being outside the normal ‘toolset’ is fine for the right people and in the right situations. 

In our recent submission to the parliamentary select committee, we advocated for two main ways to achieve this. Firstly, address the regulations so that banks can offer ‘bigger spanners’, and secondly, create an environment that encourages new ‘tool brands’ to enter the market.

On the latter point, we are seeing really good success with non-bank lenders who understand transactions that don’t fit the traditional mold. What has been great about these deals is we usually do them alongside a main trading bank, where they clearly identify at what point they can take the risk over. This means we have confidence to act. The bank doesn’t have to push outside of risk parameters, the deal can still go ahead, but a long-term funding plan can be established.

People often refer to non bank lenders as 'second tier' lenders. It's a way of describing a lender who takes more risk, or charges a lot more for their money.  While there are plenty of those lenders in the market, we are now dealing with new lenders who act more like a main bank. They actually recognise that these loans aren't higher risk, and that the main banks have just retreated away from risk. As a result the terms are very similar, and the interest rates aren't a whole lot higher. 

This is what we need more of. More lenders who can innovate and take risks in places the banks no longer go, more ‘out of the box’ decision making with the capital to support it, and as a result, more confidence for farmers.

We may never get our crescent spanner back, but a full set of spanners will definitely work.

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