Brokers need to be "more mindful of clients' state of mind" as drought worsens

Brokers working in regional communities must be especially attune to their clients’ state of mind as the country faces one of the worst droughts in decades, Mainland Finance director Brad Bland told MPA.

“The drought is a serious event and it is a very overwhelming time for a large number of people both financially and mentally,” said Bland, whose brokerage is based in Wagga Wagga.

While Bland’s older customers have experienced drought before and have been in the industry long enough to build up financial resiliency, it’s the younger or less experienced clients that brokers need to be aware of.

“Our younger clients are the ones that we currently have to be more mindful of as they are in the business cycle of establishing and growing their businesses and they don’t have the equity reserves to call on to maintain an adequate level of working capital,” he said.

The government announced Sunday (19 August) that it would increase direct assistance and concessional loans to drought-stricken farmers to $1.8bn. The government has also doubled the amount a farmer can borrow in low-interest loans to $2m and has increased the total amount available for these loans to $500m in any one year.

Now more than ever, brokers need to fully understand their borrowers’ businesses so they can proactively plan for when the drought breaks and help them build financial sustainability for the future.

“Even though core business activities may remain the same, the scale and rotation may alter significantly, and for some time as farmers re-establish their enterprise to full capacity. This will create cash flow funding gaps and potentially adversely affect the client’s ability to meet their financial commitments,” Bland said.

The economic impact of the drought is far-reaching. Agricultural production as a share of the GDP is only 2.5%, but a 25% slump in agricultural production, as seen during previous major droughts, will knock 0.6 percentage points off economic growth, said AMP Capital chief economist Shane Oliver.

“Hairdressers, bakeries, clothing stores and cafés have all reported slowing business conditions with a sharp drop in sales from late May. Therefore the drought isn’t just affecting farmers; it’s affecting everyone with a business in regional areas,” Bland said.

As for Bland’s own business, he said demand for broking services hasn’t slowed, just that the nature of the work has changed. “Where we would normally be looking at expansion, capital improvement and five-year plans, we are currently looking at consolidation/restructures, cash flow solutions and six to 12 month business survival plans.”