In my day-to-day work, I am dealing with banks and farming clients regularly. I had a conversation with a client recently, and he said he misses the days when the bank manager could approve a loan on the spot. In the big banks, this still happens, but there are many caveats.

I deal with one bank that is the newest one on the scene and has gone back to basics, with managers given a lot of autonomy to back the client. Along with the numbers, they are looking at the character of the people in the business. For this bank, character is the most important factor. Of course, the deal has to stack up in all other areas, but character is paramount.

The five ‘Cs’ of banking have been around since time immemorial. While the various components haven’t changed, it seems the emphasis has. To be even-handed, banks are required both legislatively, and by community expectation, to adhere to responsible lending criteria. Some banks seem to err on the side of caution, others may interpret it differently.

The first part of the five ‘Cs’, is character. This is exactly what you would expect it to be, sometimes business owners have just had a run of bad luck, or more likely a run of poor seasons coupled with problematic commodity prices. A farm visit will quickly determine the character of the people involved. If business owners aren’t blaming everyone else for their predicament and are willing to make tough decisions, that is a good indication they pass the character test.

Capacity is the second part of the equation. For most banks, capacity is at the top of the list. Responsible lending is here to stay and banks need to have confidence that agribusinesses are able to repay loans from profits. This is demonstrated by a combination of historical financial performance and forward cash flows.

Capital is the third piece of the puzzle. This essentially means how much equity the business owners have in all their assets overall. This may be a combination of on-farm and off-farm assets. Obviously, the higher the better.

Collateral is the fourth component and this specifically applies to assets that are offered as security for whatever loans the farming business has. The most common form of security is farming land, although sometimes other assets are used. An example of the latter is equipment finance, where the finance facility is secured by the equipment only.

Conditions in the final part of the five ‘Cs’ scenario. The banks are interested in the outlook for the sector generally. Banks are normally pretty good at taking a long-term view of industry sectors. A current example is the wine and livestock industries, which are both in a downturn at the moment. Banks understand that industry’s ebb and flow, and being involved in agriculture means you need to be there for the long haul.

Various banks may look at the same deal differently, this is not a reflection of the business owner or the quality of proposition, but more of a function of the changing nature of the lending landscape. There is choice in the market, and it pays to find the right fit for your business.