Access to finance can help farmers buy inputs, invest in equipment, expand production, or manage seasonal cash-flow needs. However, having a viable farming operation does not automatically mean a loan application will be approved.
For farmers, understanding credit risk and demonstrating the ability to manage and repay debt are important parts of preparing for finance.
Sibo Molo, agricultural consultant and director of Molo Consulting, Brendan Jacobs, head of agribusiness at Standard Bank, and Zama Sangweni, agricultural economist at Absa, highlight several areas farmers should consider before approaching a lender.
Match the credit to its purpose
Farmers have access to different forms of credit, including overdrafts, business loans, asset finance, revolving credit facilities, trade finance, and working capital facilities. Sangweni says each serves a different purpose, and farmers should ensure that the facility they choose matches what they intend to finance.
“The type of credit should actually match the purpose and the lifespan of the investment being financed,” she says.
An overdraft, for example, may be more appropriate for managing short-term cash-flow fluctuations, while a term loan can be suited to longer-term investments such as farm expansion or infrastructure projects.
Sangweni explains that credit makes more sense when it is being used to generate future value and contribute to business growth.
“If a business is consistently borrowing simply to cover operational losses or month-to-month expenses, that’s often viewed as a sign of cash-flow management pressures,” she says.
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In such cases, alternative funding options, including grants, equity investment, blended finance, or development finance, may be more appropriate.
- Short-term facilities (overdrafts, trade finance): Best suited for input purchases and bridging seasonal cash-flow gaps.
- Medium- to long-term facilities (asset finance, term loans): Suited for machinery, livestock acquisition, and infrastructure development.
Your personal credit record matters
A farmer’s creditworthiness is not determined only by the financial performance of the farming business. Molo says lenders may also consider the personal credit history of the farm owner or company directors.
“Your personal credit record is very important when you are applying for business funding,” Molo notes.
Outstanding personal accounts, including retail or cellphone accounts, can affect a credit profile and potentially make it more difficult to secure finance.
Sangweni adds that this is particularly relevant for newer or smaller businesses with limited operating histories, where lenders may look at the owner’s financial conduct alongside the business.
“As the business matures, the focus increasingly will then shift towards the business’s own financial performance and credit profile,” she says.
Farmers should therefore check their credit records before applying for funding, identify outstanding accounts or disputes, and arrange to settle legitimate debts where possible.
Funding Readiness Scorecard
South African credit committees evaluate your compliance, financial management, and operational risks before releasing funds. Audit your business across these 25 essential criteria to calculate your application readiness score.
Disclaimer: This scorecard is an educational tool designed to help you prepare your funding application. Achieving a high score indicates that you have the standard paperwork and systems in place to apply, but it does not guarantee loan approval.
Credit risk goes beyond a credit score
Jacobs says lenders look at both the broader risks associated with agriculture and the individual business applying for finance.
“Credit risk assessment looks at two broad components: industry risk and counterparty risk.”
Brendan Jacobs, head of agribusiness, Standard Bank
Industry risk considers factors affecting the agricultural sector, including the commodity and geographical area in which the farmer operates. Counterparty risk, meanwhile, considers the management team and how the business is run.
Sangweni says the fundamental question for a financier is whether the business can sustainably repay the debt. “We look at cash-flow generation. We also look at the profitability of the business.”
Lenders may also consider existing debt levels, credit history, security and collateral, as well as the purpose of the funding.
Start with cash flow, not the size of the loan
One of the most important considerations before borrowing is determining how much debt the farm can realistically afford.
Sangweni says farmers should not base their borrowing requirement simply on the amount a lender is prepared to offer.
“The starting point is always cash flow, and not the amount the lender is willing or able to provide,” she says.
Farmers should understand how much free cash is available after operational expenses, taxes, and existing debt commitments. They should also consider whether repayments can still be made during weaker trading periods or an agricultural downturn.
Sangweni recommends stress-testing the business before taking on additional debt.
“If revenue declined by 10% to 20% for this financial year, could the business still meet its obligations?”
Zama Sangweni, agricultural economist, Absa
If the answer is no, the borrowing requirement may need to be reconsidered.
Know the risks in your farming enterprise
Agriculture is exposed to several risks that can affect income and repayment capacity. These include production losses, fluctuating commodity prices, labour challenges, changing margins, and high capital requirements.
Jacobs says farmers should understand these risks and show what they are doing to manage them.
“Financial management practices should demonstrate efficiencies in farming practices, understanding of data, actions taken to manage and mitigate risks, and proactive cost management,” he says.
For example, a farmer applying for production finance should be able to explain expected yields, production costs, market conditions, and what contingency measures are available if conditions change.
Climate risk can affect your credit risk
Drought, floods, disease outbreaks, and other climate-related events can directly affect production and farm income. This makes climate resilience increasingly relevant to how farmers manage financial risk.
Jacobs says agricultural financiers understand that farming is cyclical and exposed to external shocks.
“Proactive communication helps planning,” he says, adding that banks also consider a farmer’s ability to absorb challenges and withstand financial headwinds.
Farmers should therefore consider investments and management practices that reduce vulnerability, such as water-efficient irrigation, appropriate insurance, diversified production where commercially appropriate, and sound contingency planning.
Keep accurate financial records and separate accounts
Good financial records are among the foundations of responsible credit management.
Molo says farmers should keep their financial information up to date through regular bookkeeping and maintain accurate financial statements.
“Financial statements are essential for funding,” he says.
An accurate asset register is also important. This should reflect assets such as tractors, vehicles, and livestock, with relevant identifying information kept up to date. Such records can help a farmer understand the value of the business and may also be relevant when security or collateral is assessed.
Sangweni says lenders may require annual financial statements, management accounts, bank statements, cash-flow forecasts, company registration documents, tax information, and details of how the funding will be used.
“If the information is more so complete as well as accurate, it does create a better opportunity for the lender to actually assess your application to make an informed decision,” she explains.
Farmers should also keep their farm and personal finances separate and capture transactions regularly rather than trying to reconstruct records when a funding application is already due.
Build a credit history responsibly
Farmers with little or no business credit history can start by building evidence that the business can manage its financial obligations.
Sangweni recommends maintaining proper financial records, separating personal and business finances, keeping transaction documentation, and demonstrating stable cash flow.
“It’s quite important to create evidence that the business can manage financial obligations responsibly,” she says.
Where appropriate, smaller credit facilities can also allow a business to establish a repayment track record before taking on larger amounts of debt.
Understand the full cost of borrowing
Farmers should look beyond the headline interest rate when considering a loan.
Sangweni says the total cost of borrowing can include interest, transaction fees, and other charges, as well as the frequency and terms of repayments. “They need to understand the total cost of borrowing.”
Farmers should establish whether interest rates are fixed or variable, understand what happens to repayments if rates increase, and consider how repayments will affect cash flow if income does not arrive when expected.
The repayment period should also correspond with the purpose of the funding.
“You cannot take a long-term investment financing tool to fund a short-term project,” Sangweni says.
Watch for signs of over-indebtedness
Borrowing can support growth, but excessive debt can restrict a farm’s ability to operate and respond to changing conditions.
Sangweni identifies several warning signs, including repeatedly taking on new borrowing to repay existing debt, persistent cash-flow shortages, rising monthly obligations, and an increasing share of income being used to service debt.
“When debt starts limiting operational flexibility or things like strategic decision-making, it’s often time to reassess the financial structure,” she says.
Farmers should also be cautious if borrowed funds are being used for purposes other than those stated in the funding application.
Use credit to create future income
Responsible borrowing means using debt for purposes that strengthen the business rather than simply postponing existing financial problems.
Sangweni says successful businesses tend to use credit to create future income, including through productive assets, expansion, technology upgrades, or additional working capital linked to a confirmed growth opportunity.
Jacobs similarly advises farmers to use reliable data when preparing funding applications rather than relying on overly optimistic estimates.
“Be transparent with your funder; this builds trust and a relationship,” Jacobs says.
What if you lack collateral?
Collateral can be a significant barrier for farmers who do not own traditionally accepted assets. However, a lack of collateral does not necessarily mean that a farmer has no funding options.
Sangweni says farmers without collateral should strengthen other aspects of their applications.
“If you don’t have collateral, it’s quite important to ensure that you have strong financial records, you have clear cash-flow projections, as well as a compelling business case.”
Zama Sangweni, Agricultural Economist, Absa
Farmers can also investigate blended finance, development finance, and credit-guarantee mechanisms where they are eligible. Some funding structures place greater emphasis on demonstrated cash-flow generation and repayment capacity rather than assets alone.
Be proactive when debt becomes difficult
Strong debt management starts before a repayment problem occurs.
Farmers should monitor repayment schedules closely, avoid overextending themselves, and communicate with lenders if financial pressure is anticipated.
“Missing payments is generally far more damaging than having a transparent relationship as well as communication before difficulties arise,” Sangweni says.
Early communication may allow the farmer and lender to assess available options before the situation becomes more difficult.
Credit management is ultimately about more than securing a loan. It is about building a farming business that can use borrowed capital productively, withstand agricultural risks, and meet its financial obligations over time.
A farmer’s credit-risk checklist
Before applying for finance, farmers should:
- Check their personal and business credit position.
- Keep monthly financial records up to date.
- Maintain accurate financial statements and asset registers.
- Separate personal and farming finances.
- Know their production costs, income, and cash flow.
- Match the type and repayment period of credit to its intended purpose.
- Prepare realistic, data-based projections.
- Stress-test the business against lower revenue and higher costs.
- Understand the full cost of borrowing, including fees and interest-rate changes.
- Monitor existing debt and identify signs of over-indebtedness.
- Have a clear plan for managing existing debt.
- Be transparent with the lender about challenges.
- Seek advice from a banker, agricultural specialist, accountant, or other suitably qualified adviser where necessary.
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