As drought conditions ease in many areas, farmers and small businesses have been urged to get applications submitted before September 30 if they want to benefit from the two-year interest free period.

However, the federal government will allocate an extra $2 billion for concessional loan funding to RIC in 2020-21 to give farmers and farm-related small businesses extended low-interest borrowing assistance.

The additional funding from Canberra is in response to solid demand for RIC's drought loan products and effectively doubles RIC's total farm and small business loan funds to $4b.

Up to 600 farm sector businesses have been applying for a loans each month.

"The funding is available this financial year to ensure support is provided where it is most needed and with the best possible impact," said Finance Minister Mathias Cormann.

"RIC's drought loans can be used for recovery activities such as replanting and restocking following good rainfall in parts of Australia."

Minister for Agriculture, Drought and Emergency Management David Littleproud said unprecedented demand for the concessional loans showed what a useful support mechanism it had become for rural businesses.

"These loans have been critical in helping farmers and small businesses facing hardship due to the drought."

RIC, popularly named the Barnaby Bank after its original promoter and former Agriculture Minister, Barnaby Joyce, would also be given additional operational funds of $50m over four years to deliver further loan funding and to process "the significant volume of applications already on hand".

However, the two-year interest free period, which has been offered since last November, will not be available for Drought Loan and AgBiz Drought Loan applications received after September 30.

Drought Loans help farmers preparing for, managing and recovering from drought.

They can refinance existing debt, fund drought-related activities or pay for productivity enhancements or operating expenses.

AgBiz Drought Loans assist small agriculture dependent businesses manage through drought periods by helping to them refinance existing debt or pay for operating expenses.

"The Government announced the two-year interest free terms for these loans last year in response to the severe drought conditions being experienced in many parts of the country," Mr Littleproud said.

"With conditions improving it is now time to revert back to the previous concessional terms for the RIC's loans.

"I understand parts of Australia are still experiencing drought and it will also take a number of years to recover.

"For applications received after September 30, 2020, a five-year interest-only period will apply, followed by principal and interest for the remainder of the 10-year term."

Interest rates for Farm and Small Business Loans would drop to 1.92pc on August 1.

Mr Littleproud said these discount terms still enabled rural businesses to save thousands of dollars annually on interest bills and put those savings to better use.

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Meanwhile, RIC's AgriStarter Loans service, designed to support people in establishing a new farm business, buying an existing farm business or undertaking succession arrangements, would receive $75m in 2020-21.

The extra funds would become available to borrowers from January 2021.

"The government understands the importance of encouraging a new generation of farmers to the sector and the AgriStarter Loans will be a useful program to support this," he said.