Bank Loans Bit like Rain; needed but not always on your terms

21st May 2011

Well someone in the county must have made a start with silage making as it’s eventually started to rain at last! The dry spell seems to have latest an age and looks like for some, will have a significant impact on yield this year. On the upside, lambing has been made a lot easier and given the new crop of lambs a great start in life.

I was talking to a very good friend of mine whose an upland sheep farmer last week and he’s certain that the moorland fires that have been seen are exaggerated by the lack of stock on the moors and hills. I couldn’t agree more; definitely the stock would have kept dead dry matter levels down and so less susceptible to sudden out breaks of fire which this year have been so wide spread as well. Perhaps Natural England should look to pay farmers to restock these areas as fire deterrents or be less hasty in their “best” practice approach to upland management.

Turning to my main point, we are starting to see the effects of the credit crunch coming through on lending in the agricultural sector and the days of cheap simple money has drawn to an end. The lending institutions have decreased in number and are beginning to introduce various covenants and conditions which are new to the agricultural sector. Some of these covenants are just not workable in a farming scenario and are being introduced by the corporate banking teams who have little understanding of a farming business. It’s so important that you understand the implications of these from a practical side and particularly in farming where we see such volatility in profit levels and commodity price’s, it’s often difficult to achieve covenants which are placing conditions on balance sheet performance for example. I see covenants as a way for the banks to re-negotiate the terms in a few years time, you therefore need to be careful and ensure your not locking into something for 20 years which cannot be achieved annually.

Business plans are so critical to assist in the funding proposal. The banks need to see how you intend to service the loan and the impact of variation, so for example, what happens if wheat drops back to below £100/t? If you can’t deliver such requests, it’s likely you’ll pay more in set up costs and a higher margin! Many banks are insisting on interest rate protection, but it’s not all about “fixed rates”, there are many other options which may be more suitable to you flexible requirements.

We are holding two breakfast talks on Understanding a Bank Loan at Romanby Golf Club on the 21st June and Malton Rugby Club on the 22nd June; breakfast is provided and we’ll run through the current economic climate, a loan offer and what if means and what you need to provide to get the funding. It’s a start at 8.30 for an hour and half and open to all, and we’d be delighted if you are able to come along.

If you would like more details regarding either of these events please click the links below:

Romanby Golf Club – 21st June 2011

Malton Rugby Club – 22nd June 2011

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