July 24, 2012, Agri-business owners intent on future expansion will discover they need a much more business-like approach.
Careful planning and a well considered business plan are now prerequisites for any landowner or farmer wanting to expand or modernise their activities.
Anyone who hasn't embarked on new farm investment in the past five to ten years will find that the days of easy money have gone and there is a need to be far more professional when approaching lenders.
The credit crunch and world banking crisis may seem remote from rural activities but those who want to borrow could be about to get a rude awakening.
Lenders are right to be more circumspect about making loans, the terms involved, and the applicable interest rates.
In the past, agri-business owners with a good idea would simply approach their bank manager and getting finance was far simpler. These days, a viable business plan backed by sound expert advice is the very least required.
Farmers who have spare cash may be better advised to keep existing loans rather than pay them off faster and instead use the money to fund new ventures. Getting new loans now involves higher arrangement and renewal fees.
Whatever the decision, it's important to keep up a dialogue with the bank and advisers. Investment plans will be better prepared if their feasibility is established in principle in advance of applying for the money. Discuss plans with lenders and check out the reality of whether or not funds may be forthcoming before committing money to preparing the business case in consultation with accountants and industry advisers.
The good news is that discounted loan rates from the Agricultural Mortgage Corporation (AMC) are available but quick action is needed to ensure a loan is secured before the current rates expire.
AMC, for which Carter Jonas has long been agents, has negotiated access to a multi million pound fund provided by the European Investment Bank (EIB) aimed at stimulating investment and job creation in small and medium sized businesses, including farming.
The AMC access to this fund allows it to effectively subsidise loans for a wide range of agri-business improvement and diversification projects, including building works and livestock housing, machinery and equipment purchases, farm shops, milking parlours and farm energy schemes. The total fund pot is limited and there is already a good level of interest. Farmers with a particular project in mind are urged to contact their local Carter Jonas office.
This scheme provides an opportunity for farmers wanting to expand or invest in improving farm efficiency to access favourable loan rates at a time when interest rates are already historically low. It is an important tool to help reduce the effects of price fluctuations and input cost volatility.
Those borrowers eligible for the EIB scheme will receive a significant discount of 0.65 per cent off the normal loan margin. The minimum amount borrowers can apply for in the scheme is £25,500. The discount is available on loans of up to ten years for projects that have a definite start and end date and must complete their loan by December 2013.
A wide range of projects falls within the scope of the scheme so it is worth considering how it could help strengthen your business for the long term. With the demands to produce food for a growing population increasing, this funding offers a real financial boost at an important time for many agri-businesses.
Example lending purposes
The following are examples of loan purposes that will qualify for the discounted rates. The range of loan purposes is wider than the examples shown so applicants need to check with the AMC on a proposal by proposal basis.
- Buildings: general purpose shed; hay/straw storage; livestock housing; grain store; potato store; chicken sheds; milking parlours.
- Equipment: grain drying; robotic milking equipment; milking parlour equipment; chicken shed equipment; vegetable processing lines; milk processing equipment.
- Vehicles: tractors; combines; potato harvesters; lorries.
- Renewables: photovoltaic panels; wind turbines; water turbines; anaerobic digesters.
- Storage: reservoirs; slurry store.
General: opening or expansion of a farm shop; orchard establishment; dairy cows; purchase of wholesale business (max €1 million); farm field draining; research and development.
Carter Jonas has the specialist expertise to advise on the viability of many such schemes and help prepare loan applications.