Private credit has always been present in agriculture in the form of vendor finance.

While not so prevalent these days, historically, it was a win/win for the parties.

Other forms of credit from non-farming sources are becoming more common.

While not a significant portion of funding to agri, it is a growing segment.

There have been recent instances of private credit funds taking inordinate risks and coming unstuck.

However, there are many reputable operators with a long-term track record in the sector.

One way I came across recently was by way of direct investment via a mortgage fund.

A mate operates one of these funds and has done so for many years.

There are synergies for investment in agriculture for the right type of deal.

Examples I have seen are fundamentally sound agri businesses that are growing quickly and need funding to take up an opportunity, using a combination of bank and private credit funding to take advantage of the business growth option that has arisen.

In situations like this, the business may fall outside the bank’s risk appetite, even though the proposition is sound.

An option is for the agribusiness owner, bank and private credit provider to put a package together that works for all parties.

In these circumstances, the business’s cost of capital is averaged out between the facilities and measured against the rate of return the proposed venture is forecast to generate.

The private credit provider will likely exit the arrangements on agreed terms once certain metrics are reached.

Private credit can also be used by farming families to buy off-farm assets.

An example is the purchase of a commercial property that requires renovations before leases being executed.

The bank is on the sidelines as there are not leases in place to show servicing, but the private credit provider can see the opportunity and is able to manage the risk and ensure the transaction proceeds.

In these cases, the private credit lending is refinanced to a bank once agreed milestones have been met.

Private credit is becoming more interested in agriculture as an asset class, as it can see the sophistication and professionalism of farming businesses.

As with any agricultural endeavour, it is vital to have the right team.

Whoever the farming business partners with must be on board with the overall vision and understand agriculture is not linear.

It is useful to look outside traditional finance options.

This does not mean the farming business dispenses with its banking relationship; it simply means that other options are worthy of consideration.

As agribusinesses become more complex, it pays to have people suitably qualified to advise.

It is incumbent on the business owner to sort the wheat from the chaff.