Learn how RIC defines significant financial impact and what evidence you need to show.
What you’ll learn:
- What significant financial impact means
- Examples of significant financial impact
- The meaning of cumulative impacts
- Evidence of significant financial impact
What significant financial impact means
To be eligible for some RIC loans, you need to show that your business has experienced ‘significant financial impact’ outside of your control that has or is forecast to significantly reduce the profitability of your business.
The significance of the financial impact is assessed on a case-by-case basis. It is important to be able to effectively show the full extent of the downturn your business has experienced and how it has been caused by an event or cumulative events that were outside of your control. The duration of the financial impact will generally take more than two years to recover from, and will be proportionately significant to the size of your business.
Examples of significant financial impact
Significant financial impacts could include:
- large reductions in net cash flow not caused by voluntary downsizing or a normal change in business model
- Abnormally large reductions in production and/or yields not caused by normal changes in business model
- large reductions in livestock numbers through forced sales or deaths
- large reductions in operating margins
- large increases in operating expenses, including fodder and agistment expenses not normally required to maintain production levels
Examples of specific impacts:
- forced destocking through forced sales and movement of stock to agistment or feedlots due to on farm feed depletion caused by drought, disease or disaster
- abnormally high increase in purchased fodder essential for drought or natural disaster-affected stock
- expenditure related to a reduction in water allocations
- abnormally high increase in purchased water supplies for drought-affected stock and/or crops
- complete crop failure or abnormally large reduction in yields, because of drought or natural disaster
- a significant increase in the price of purchased feed not normally required to maintain production levels because of drought conditions
- essential expenditure related to helping your business recover from drought conditions or natural disaster (for example, essential restocking, de-silting of dams or replanting)
- other essential drought management strategies adopted to manage the farm business for the duration of the drought and during the recovery phase
The meaning of cumulative impacts
Some RIC loans consider what’s called ‘cumulative impacts’, referring to multiple events that together have had a significant financial impact on your farm business.
An example of cumulative impacts could be drought conditions, followed by an unexpected market closure or natural disaster. If your farm business has experienced cumulative impacts, you should outline this in your application.
You can include multiple events providing they have occurred in the last five years.
Evidence of significant financial impact
During the application process, you will be asked to show evidence of the significant financial impact on your farm business.
You will also need to show evidence that the financial impacts are directly related to drought, natural disasters or other unforeseen events outside of your control.
These impacts should be evident in your farm business' financial statements, tax returns and drought management plan (for Drought Loan only).
If you are forecasting financial impact into the future, you will need to provide your farm business’ forward budget.
Evidence that the impacts are related to events outside your control may include:
- notifications of natural disasters declared under Disaster Recovery Funding Arrangements
- documentation from government agencies or industry bodies relating to disease outbreaks, pest or weed incursions, sudden and unexpected biosecurity restrictions, market closures or other significant restrictions
- photographs (e.g. related to a localised but significant frost or hail event).
- unbiased media articles which may confirm the occurrence of adverse events specific to your farm business location.
If you have questions about significant financial impact, contact us.