What the bank wants to see

Whether it's land or a big machine, the bank asks three questions. Can you make the repayments? What backs the loan if you can't? And how have you run things so far? Come prepared for all three.

Can you make the repayments?

This is called servicing, and it's where most of the bank's attention goes. A strong balance sheet won't save a deal the farm can't pay for.

The bank wants a budget for the whole farm after the purchase, not just the new block or machine. That means extra income, extra costs, and the interest and repayments on the new debt. One measure it looks at is interest cover: how many times your profit before interest and tax covers the interest bill. The higher, the safer. Each bank sets its own limits.

Expect the bank to test a poor season too. Our season stress test does the same thing.

What backs the loan?

This is security. For land, the bank lends against its own valuation, not the price you pay. If you pay more than the valuer's figure, you fund the gap from your own equity. The Banking Code of Practice says that if you paid for a valuation of agricultural property, the bank will give you a copy. Ask for it.

The bank also looks at your LVR (loan to value ratio): total debt divided by the value of all the security. Each bank sets its own limit for farmland.

Your track record

The bank looks at your past results, your equity and how you've run your accounts. Clean, up-to-date figures help a lot.

What to bring

• Three or four years of financial statements.
• A statement of position: everything you own and owe.
• A budget and monthly cashflow for the farm after the purchase.
• Quotes, the contract of sale, or the lease.

Use our borrowing capacity calculator for a first idea of what might be possible. It's a guide only. Only the lender can tell you what it will lend, after its own assessment.

Get the bank's view early

Talk to the bank before the auction or before you sign. If the numbers don't stretch, you'll know before you're committed.

If you want to know where your business stands before that conversation, our Farm Health Check looks at your figures the way a lender would.