Obtaining Finance in a Challenging Climate

Farming is a challenging business. Most farming enterprises are subject to fluctuating input and output prices making day to day cashflow difficult to manage. This makes overdrafts and bank loans are key to assets to allowing the business to run efficiently.

In recent times we have seen lenders become more hesitant when providing short-term finance and often require more information when considering these facilities. This is resulting in longer lead times and frustration from our clients.

Overall high street lenders are still supportive of lending to agriculture. However, with the quickly changing pace of farm profitability (as we have seen in the dairy industry over the last year) there is more uncertainty over the serviceability of longer-term debt. This often leads to our clients looking to alternative lenders to provide solutions if they can do so quickly.

Below are some key considerations which may help get the green light from your bank or finance provider:

• Consult with your lender early and don’t wait until the last minute. This is often key with overdraft limits being extended. Planning ahead and knowing two to three months in advance that you require more money, can give you, and the lender, time to consider the options.
• Prepare a summary document explaining the business and family members. With some lenders now not providing a bank manager for businesses with <£500k of debt, it is often the case that you are dealing with different people every time you have a finance need. Having such a document allows the manager assisting you to gain an understanding of you and your business.
• Have quotes ready to support your funding need. This provides clarity regarding the amount needed and provides the lender with confidence.
• Be upfront with your financial information. It is important to provide your most recent accounts, and if these are not available then some management information from your bookkeeping software. This provides key evidence regarding the business’ ability to service debt. If you have had a difficult year, then asking your accountant to provide a commentary alongside the numbers can be a useful accompaniment to explain the results.
• When asking for sizable lending, changing your business, or requesting increases to your overdraft facility, it can be useful to provide a cash flow forecast. For example, having a six-month cash flow forecast to support an overdraft extension provides credibility. It illustrates the maximum overdraft requirement and gives clarity as to the expected timescales for things to return to “normal”.

Of course, the best chance of obtaining finance is by having a business that can adequately service the debt it requires. It is worth remembering that a well laid out proposal to the bank can sometimes help tip the scales in favour of you and your business.