Drought finance: keeping the farm standing until the rain returns

What does drought finance actually mean?

Drought finance is not one product on a shelf. It is a set of tools used when dry conditions squeeze a farm: more working capital to buy feed, a restructured loan with lower near-term repayments, a short-term facility to cover a gap, a concessional government loan, or a combination. What links them is timing. The earlier a farm lines up its options, the more of them remain available.

Australian agriculture lives with variability. The Bureau of Meteorology tracks rainfall deficiencies and long-range outlooks, and ABARES reports on farm performance through wet and dry cycles. Lenders know this. What they want to see is a plan: how the farm has coped so far, what its destocking, feeding and cropping choices have been, and how it expects to recover when conditions improve.

Who needs drought finance?

• Livestock producers buying feed or carrying stock through dry months
• Cropping farms with failed or reduced harvests
• Dairy farms facing high fodder and water costs
• Horticulturists and irrigators with limited water allocations
• Farms rebuilding after drought with restocking or re-sowing costs
• Rural suppliers and small businesses hit by flow-on effects

What pressures does drought place on farm cash flow?

Drought hits from several directions at once. Income falls through lower production or forced sales. Costs rise through feed, freight and water. Asset values can soften, which alters loan-to-value positions. And the usual safety valves, such as a good harvest next season, are uncertain. The result is that a farm which is sound over a ten-year view can look stretched in a single review.

Lenders respond in different ways. Some are patient and willing to restructure. Others tighten, issue notices or reduce limits. The difference often reflects internal policy and regional exposure rather than the quality of your farm, which is why a second opinion can be valuable.

What options exist?

Option	What it does	Points to consider
Talk to your current lender	Seek interest-only, term extension or limit change	Often the first step; keep records of every conversation
Refinance to a new lender	Move to a more flexible structure	Needs a clear recovery narrative
Working capital facility	Funds feed, wages and operating costs	Must fit within serviceability
Concessional government loan	Drought preparation, management and recovery	Eligibility and purpose rules; terms set by the programme
Short-term private facility	Bridges a gap or buys time	Needs a defined exit
Farm Household Allowance	Income support for eligible households	Income and assets tests apply
Farm Management Deposits	Pre-saved income averaging tool	Only useful if set up before the drought

The government and community support layer

The Regional Investment Corporation provides concessional loans for farm businesses, including the Drought Loan and, for farm-related small businesses, the AgBiz Drought Loan. The Farm Household Allowance, delivered by Services Australia, may help eligible farm households with living costs while they work on their business. Rural Aid and state agriculture departments also provide practical support, such as fodder, counselling and community assistance. These supports can reduce the amount of commercial debt a farm needs to take on, and we are happy to help you work out how they fit with your plan.

How Ownright helps through drought

Trevor Scott has seen several droughts in more than 40 years of finance, and each followed a similar arc: denial, squeeze, scramble, recovery. The farms that come through best are usually those that moved early, kept the communication open and chose structures they could live with.

We help in practical ways. We organise the financial picture, prepare a recovery narrative lenders can follow, and approach the right lender types in the right order. If your lender is hesitant, we look at alternatives. If time is critical, we consider short-term private finance to buy room while a longer-term solution is prepared. We do this in every state and territory, and we know that drought in the Western Australian Wheatbelt feels different to drought on the Darling Downs.

An illustration

Illustrative scenario only. A mixed farm in a dry region has destocked heavily and planted a reduced crop. Its operating line is near its limit and the lender has asked for a review. The family wants to hold their core breeders and be ready to plant if rain arrives. A broker could help assemble a recovery plan, explore a concessional loan for part of the funding, approach a flexible lender to restructure the term debt with a period of lower repayments, and line up a modest working capital facility sized to the feed and input budget.

Mistakes to avoid

• Waiting for a default notice before seeking advice
• Selling core breeding stock at the bottom of the market without exploring alternatives
• Stacking short-term debts that all fall due together
• Forgetting to tell the lender about government support you are receiving
• Making decisions about restocking before water and feed are secure

Documents to have ready

• Current loan statements, limits and expiry dates
• Recent financials and a current-year cash-flow forecast
• Feed, water and stock schedules
• Any lender correspondence or notices
• Details of government support applied for or received

How do lenders see drought-affected financials?

Lenders understand that a drought year is not a normal year, but they still need to see the numbers. Some will look at an average across several years; some will exclude or adjust a drought year if you can show why; others will take every year at face value. Your story should make clear which items were drought-driven (extra feed, reduced production, forced sales) and which are structural. Showing that you cut costs and protected your core assets signals good management.

What can be done before the drought bites?

Preparation matters. Farm management deposits let eligible primary producers set aside pre-tax income in good years and draw on it later. Feed reserves, water storage, destocking triggers and a plan agreed with your lender before conditions deteriorate all help. If you are not yet in difficulty but the outlook is poor, a conversation now about a facility with headroom can be far easier than one forced by a crisis. We are happy to look at your position and suggest what to arrange while times are still manageable.

What trigger points should a drought plan include?

The farms that cope best usually decided in advance what they would do at each stage, so decisions in the middle of a dry spell are not made in panic. A written plan might set trigger points such as:

Trigger	Possible action
Autumn break fails to arrive	Review stocking rate, confirm feed supply and speak to your lender
Stored fodder drops below a set number of weeks	Begin selective destocking and price feed purchases
Stock water falls below a set level	Cart or pipe water, reduce numbers or agree on a facility
Cash headroom falls below a set point	Contact your lender, accountant and counsellor
Operating line near its limit	Seek a restructure or refinance before it is fully drawn

The exact points depend on the farm, the district and the enterprise. Having them written down also shows a lender that you manage risk deliberately.

How should you talk to your lender during drought?

Open the conversation earlier than feels natural. Tell the lender what is happening on the ground, what you have already done, and what you propose. Bring a monthly cash flow rather than a vague promise. Ask whether a period of interest-only repayments, a revised limit or a different repayment date is possible. Record who you spoke to, the date and what was said, and follow it with a short email. If the response is unhelpful, you can seek a second opinion, and you should know that you can raise a dispute through the Australian Financial Complaints Authority if you cannot resolve a concern directly.

What free help is there beyond finance?

The Rural Financial Counselling Service offers free, independent and confidential assistance to farmers in financial difficulty on 1300 771 741, including help with cash flow planning and dealing with lenders. State agriculture departments often publish drought information, and community organisations provide practical support such as fodder and counselling. Speaking to a counsellor does not commit you to anything and can make a lender conversation far more productive.

Planning the recovery phase

When rain finally comes, the pressure does not end. Recovery brings its own cash demands: resowing, restocking, repairs and catching up on deferred maintenance, often before income resumes. Lenders look for a recovery plan as much as a survival plan. A sensible one phases the spending, restocks in line with feed rather than in a rush, and keeps some buffer in case the next season is also tough.

• Cropping farms need seed, fertiliser and fuel upfront, so working capital must be in place before sowing.
• Livestock farms need to match restocking to pasture growth. See livestock finance for how lenders view this.
• Irrigators need to watch water allocations and the cost of buying water.
• Dairy farms have to balance herd rebuilding with the cost of feed.

Because the recovery spend usually comes before the recovery income, the structure of the finance matters more than at almost any other time.

Can off-farm income help?

Yes. Many farm households carry some off-farm income, from wages, contracting or a partner’s work, and lenders may count it towards servicing. In a drought it can be the difference between a loan that holds and one that does not. Our guide on off-farm income and farm lending explains how lenders treat it. If you are weighing a restructure and want a second view, talk to Ownright and we will go through the numbers with you.

Talk it through

If your lender has already raised concerns, start with farm debt refinance or farm debt restructure. If arrears have started, farm loan in arrears help covers that path. When restocking is on the horizon, read livestock finance, and for timing gaps look at farm bridging loans. Our guide drought and farm cash flow: your options goes deeper.

The sooner the conversation starts, the more room there is. Tell us where the farm stands or call 03 7043 7233. Ownright Custom Finance, Knoxfield VIC, helping farms right across Australia.