As the challenges faced by farm businesses continue to evolve, the demand for additional borrowing facilities is on the rise.
Whilst some input costs have eased back from their peaks last year, they show no signs of returning to the levels pre-pandemic or before Putin’s invasion of Ukraine and are continuing to put a strain on farm finances.
The added challenge in 2023 is not just the practicalities of arranging new banking facilities, but the cost of the finance given the rapid increase in base rates.
The result of increased input costs is that farmers require more working capital to finance their businesses. An example of this is the extra cost of filling the silage clamp as a result of the increased fertiliser, fuel and contractors’ charges.
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.
UK 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, they will require information about future cash flow and how you intend to repay the borrowing. Simply having land and property as security for bank finance is not enough these days. 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.
There are alternatives to the traditional high street banks when it comes to accessing farm finance. At Armstrong Watson, we have specialists who can advise on the opportunities open to your business.
Whether you are approaching your current bank or a new lender, the person making the decision is unlikely to have a detailed knowledge of your business, so here are a few tips on how to speed up the process and increase the chances of a positive response:
Apply early – do not leave it until you have exceeded 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 needed.
Provide as much financial information as possible, including accounts and cash flow projections if available. These will evidence that the additional funding can be serviced and that the business is well managed.
The best advice is to plan well ahead and understand your cash flow requirements. Please get in touch if you require assistance in putting together your application or identifying alternative sources of finance. Call 0808 1445575 or email help@armstrongwatson.co.uk.
