The impact of coronavirus on borrowing money for your business

The events of the past 16 months have had massive adverse effects on the UK economy. Within agriculture, the effect of both Brexit and Coronavirus has not yet been felt. After an initial period of short-term demand and price reductions across most sectors in spring 2020, we have seen most sectors bounce back, and certainly, livestock prices seem as good a recent memory can remember.

However, across the UK most other industries have been adversely impacted and largely propped up by government secured loans, the furlough scheme, and business rates grants/reductions. As a result of this unforeseen change and government-secured borrowing, most banks have seen a swift change in the risk profile of their lending book. Though agriculture is viewed as a low-risk sector, given the security available, it is important to remember that agriculture is a small part of this “lending book”. Therefore, though we may view the risk profile of agriculture as low, it is certainly going to be harder to obtain the “green tick” for new lending and you may have to pay a higher rate of interest for the privilege - we have seen this already in the form of banks increasing their margins.

In the past few months of presenting lending proposals and helping clients to obtain lending, it has been clear to me that the appetite for projection-led lending is low. This means that for new businesses or businesses looking to change their operations significantly that lending is going to be harder to achieve. It is therefore important when presenting the proposal to the bank, you consider the sensitivity of your proposal and that you or your advisers explain the history of your business clearly illustrating how you have successfully managed change in the past or your business's success. In summary, the right proposal will still get the borrowing it requires, but two things seem more certain over the next couple of years; the cost of borrowing will be higher, and projection-led lending will be much harder to get through than two years ago.