Five sim­ple steps to make sure you can get the

Irish Independent - Farming - - FINANCE - MIKE BRADY

IN Ire­land, there are ef­fec­tively only three main­stream banks lend­ing to farm­ers for long-term agri­cul­tural projects such as pur­chas­ing land or farm build­ing de­vel­op­ments.

So it is im­por­tant that any ap­pli­ca­tion for fi­nance is well thought out. Here are the key steps in the process:

Step 1: Ask why are you bor­row­ing money

In any fi­nance ap­pli­ca­tion, the first task is to iden­tify why you are bor­row­ing money.

If it is a case of your over­draft be­ing at the limit and you ur­gently need cash to keep go­ing but you are not sure why you are tight for cash, you should im­me­di­ately get a pro­fes­sional to re­view your ap­pli­ca­tion and farm busi­ness be­fore go­ing any fur­ther.

The old days of the friendly bank man­ager cov­er­ing a few cheques be­cause you are about to go over the limit are long gone; in fact, ask­ing for such a favour will do your ap­pli­ca­tion more harm than good.

The rea­sons for re­quir­ing ex­tra fund­ing are cat­e­gorised as fol­lows:

• Work­ing cap­i­tal — fi­nance to cope with short-term cash­flow deficits.

• Short-term loans: fi­nance re­paid over a one- to seven-year term, usu­ally for live­stock and/or machin­ery.

• Long-term loans: fi­nance re­paid over a 7- to 20-year term, usu­ally for land or farm­yard de­vel­op­ments.

• House mort­gages: fi­nance re­paid over 15-25 years for the build­ing or pur­chase of a dwelling house.

The above are bone-fide rea­sons to bor­row money but if you are bor­row­ing from dif­fer­ent sources to fund deficits of cash you may need to look deeper into your busi­ness to find a suit­able so­lu­tion to the deficits of cash.

Step 2: Meet­ing the bank’s ‘three Cs’

If you are ap­ply­ing for fi­nance it is es­sen­tial that you meet the ‘three Cs’ in the bank’s as­sess­ment of your ap­pli­ca­tion:

• Ca­pac­ity: the ap­pli­ca­tion must show that the busi­ness has the abil­ity to re­pay the loan. This can be demon­strated us­ing fi­nan­cial ac­counts and fi­nan­cial pro­jec­tions.

• Col­lat­eral: the se­cu­rity re­quired for the loan. The rule of thumb is that the loan-to-value ra­tio must be un­der 70pc, ie if you bor­row €350,000 you must have at least €500,000 of se­cu­rity to back the loan, usu­ally in the form of land.

There are ex­cep­tions to this rule but is al­most uni­ver­sally ap­plied in long-term loans.

Short-term loans for machin­ery may be se­cured by the ma­chine alone, for those with good credit his­to­ries. Banks in this coun­try do not ac­cept live­stock as se­cu­rity (chat­tel mort­gages).

• Char­ac­ter: if you have a poor credit his­tory, it is very dif­fi­cult to get fi­nance in the cur­rent bank­ing cli­mate. A his­tory of bor­row­ing and re­pay­ing loans is a ma­jor plus in get­ting a loan ap­pli­ca­tion over the line.

Step 3: Pre­par­ing the fi­nance ap­pli­ca­tion

It is im­por­tant to de­liver the in­for­ma­tion re­quired by the bank; this will avoid un­nec- es­sary de­lays in the pro­cess­ing of the ap­pli­ca­tion.

Here is a list of in­for­ma­tion to sup­ply with an ap­pli­ca­tion for fi­nance:

• Last three years’ fi­nan­cial ac­counts.

• Farm busi­ness plan (tech­ni­cal & fi­nan­cial)

• Land sched­ule.

• Bank loan and fi­nance lease sched­ule.

• Trade cred­i­tor sched­ule.

• Live­stock sched­ule.

• Cap­i­tal in­vest­ment sched­ule.

• Key per­for­mance in­dices. It is bet­ter to be proac­tive and ask the bank what they re­quire as banks have dif­fer­ing re­quire­ments. A well-pre­pared ap­pli­ca­tion col­lated by an ex­pe­ri­enced con­sul­tant/ ad­viser who knows the form of the par­tic­u­lar bank is vi­tal in any large ap­pli­ca­tions.

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