Loan your farm business needs
Step 4: Negotiation
If you have a strong farm business and you require a large loan, you are in a position to negotiate the terms of your loan, ie the loan amount, term, interest rate (margin) and security offered.
Unfortunately, there is not enough competition between banks in Ireland at present.
This is in stark contrast to our European neighbours, where the extra competition results in lower bank margins and interest rates.
Margins today in Ireland range from 2.5pc to more than 5pc above the cost of funds.
These figures are much higher than those available between 1997-2007, where margins as low as 0.5pc plus the cost of funds were negotiated by strong farm businesses and purchasing groups.
Step 5: Delivering
The final and most important step in any loan application is delivering on your farm business plan and promise to repay the loan.
It is important to show the bank that you are delivering what you said you would do — and be proud of your achievements as this will stand you good stead in future applications.
Long-term finance can be obtained from the three pillar banks, Allied Irish Bank, Bank of Ireland and Ulster Bank; all three have specialised agricultural advisors to assist in the application process if necessary.
In respect of short-term finance there are many more options.
The three pillar banks are also in this space, but they now have increased competition from Strategic Banking Corporation of Ireland (SBCI), credit unions, Finance Ireland (via selected milk purchasers), Micro Finance Ireland, finance leasing companies and new short-term finance companies such as Linked Finance.
The attraction of such sources of finance are faster decisions, quicker access to cash and the lack of security required.
However interest rates are often higher to reflect the additional risk.
Access to finance is the life-blood of all farm businesses.
Do your research, prepare a good application and put your best foot forward — it will shape your future progress.
IF YOU HAVE A STRONG FARM BUSINESS, YOU ARE IN A POSITION TO NEGOTIATE THE TERMS OF YOUR LOAN
Mike Brady is managing director at Brady Group agricultural consultants & land agents, email: [email protected]group.ie