Agriculture is a very capital-intensive business. This statement will be no revelation to anyone involved in the industry.

Most people – including me – tend to think of capital in terms of access to funds.

Another form of capital often not acknowledged is human capital – the expertise and knowledge the business owner brings to the table.

This can be substantial.

Most aspects of agriculture are heavily influenced by economic principles.

Supply and demand is the most obvious one.

This particularly applies to a commodity type of business, which is applicable to much of the agricultural sector.

Capital in whatever form is usually a finite resource, and the appropriate allocation of capital is usually a challenge.

All business owners make decisions on where to distribute resources, based on the best information they have available at the time. Often, it’s only with hindsight that anyone knows if the correct choice was made.

In banking parlance, they have limited capital to issue to businesses, and they make calls daily on which businesses firstly, receive money, and secondly, how much.

Banks are very large businesses, with big balance sheets, and they have to weigh up a lot of things internally, before they lend to farming businesses.

A history with a bank is a good start. Although there can be a loyalty premium paid by some customers. A track record of profitability, and high level of equity is also highly regarded.

Ability to service the loan is front and centre, post banking royal commission. Banks must adhere to responsible lending laws, and they do so assiduously.

A form of capital that is vital – and in my view sometimes overlooked in the loan approval process – is human capital.

The business owner’s ability to run a profitable, sustainable business is paramount and ultimately supersedes everything else.

A farming operation can have the best finance metrics, and tick all the boxes, but if the people behind the business aren’t following through, and producing results – and therefore profits – nothing else really matters.

Although in farming, as we know, there are circumstances beyond the operator’s control – a case in point is the winegrape industry currently. But in my experience, the good operators seem to find a way to make it all work.

Backing the person is still important, but it does tend to be further down the list in assessing finance deals. This is where being able to articulate a plausible plan is imperative.

Often, if a farming business is purchasing more property, there is normally a lag time before full production is reached. Having an achievable plan to reach full production is a key element of any bank’s assessment.

Backing the person works both ways, the onus shouldn’t all be on the borrower. Any farming business needs to know the banker they are dealing with is a good fit for their business.

People quite often lose sight of how much they bring to the table. Passion and drive and a will to succeed are big drivers for success.