Tips on approaching your bank for extra facilities

Much comment has been made on these pages in recent months regarding the massive increase in input costs facing all farmers. There is no sign of any relief from the increased cost of fertiliser, fuel, feeds, etc in the coming months. Selling prices of most commodities have also increased, but whether the increased income is sufficient to cover the increased costs is another matter.

The result of this is that all farmers require more working capital to finance their business through the next year. An example of this is the extra cost of filling the silage clamp this year compared to last as a result of the increased fertiliser, fuel and contractors’ charges. Many businesses will require additional bank facilities to help them meet these extra costs, and here we provide some tips on how to approach your bank.

The first point to note is that fewer farm businesses have a dedicated bank manager than in the past. This makes it less likely that an increased overdraft facility can be arranged quickly, so it is essential to plan ahead.

The banks are still generally supportive of UK agriculture due to the strong asset backing of most businesses, and the low risk of default and bad debts. However, most will require information about future cashflow and how you intend to repay the borrowing. Simply having land and property as security for bank finance will not suffice. The business has to demonstrate it can service the additional funding not just secure it. A temporary increase in an overdraft facility is just that, and the bank will want to understand how and when the facility can be reduced.

As the person making the decision whether to lend money to your business is unlikely to have a detailed knowledge of your business, how can you improve the chances of a positive answer?

• Apply early – do not leave it until you have gone over your existing overdraft limit or have bills due for payment.
• Provide background information about your business – how it has developed over the years and the people involved.
• Explain the reason for the request, and the term of the loan or additional overdraft is needed.
• Provide as much financial information as possible, including accounts and cashflow projections if available. These will evidence that the additional funding can be serviced and that the business is well managed.

In summary the best advice is to plan well ahead and understand your cash flow requirements and go to your bank at the earliest opportunity with a well-prepared plan.