The Press and Journal (Aberdeen and Aberdeenshire)

Navigating the virus crisis

- In my view Hamish Lean ■ Hamish Lean is a partner at Shepherd and Wedderburn

The UK and devolved government­s are implementi­ng measures intended to mitigate the economic impact of the Covid-19 pandemic.

Farming businesses are reviewing their own positions and taking steps to protect themselves so that they are in as strong a position as possible to get through the crisis and emerge in a viable state.

The position of existing borrowing and the availabili­ty of future borrowing is critical and borrowers, banks and other funders need to consider a series of questions, including the planning of cashflows.

Businesses need to update their immediate and longer-term cashflow positions, capital expenditur­e plans and other business and financial forecasts as best they can.

They should take account of trading conditions and available government Covid-19 assistance with the likes of payroll, rates and other taxes, while bearing in mind possible diversific­ation, the availabili­ty of business interrupti­on insurance and possible asset disposals.

Assumption­s underlying figures will be significan­tly less reliable than normal and the sophistica­tion of advice and analysis required will vary greatly among businesses.

Another key issue to consider is the projection of borrowing requiremen­ts.

Financial forecasts will drive funding requiremen­ts: the level of borrowing is required, when it is required in order to operate or protect the business, and how and when it will be feasible to pay interest and capital.

Farmers should also be asking whether there are existing or possible future defaults under existing facilities.

Is the current position a “material adverse change” or other event of default? Is there a default cure mechanism? Can next payments be made – rememberin­g overdrafts are technicall­y repayable “on demand” anyway? Are financial covenants likely to be breached when they are next tested?

How much headroom is there on overdraft, invoice finance and other working capital facilities – and is it still available? Are capex or other facilities still available to draw? Can any conditions precedent to further drawing of facilities be satisfied and is it practicabl­e, even at the level of getting documents signed?

When it comes to getting new money, you should be asking whether this can be raised with bank loans only or is equity needed from shareholde­rs or a third party. Do you need the consent of other existing lenders? Are alternativ­e unused sources of debt available, such as invoice or asset finance or asset-based lending? Are the Covid-19 grant, debt or guarantee schemes available and are any available through a current lender?

Lastly, close liaison between borrowers and lenders, and among lenders and all of their advisers will be critical to implementi­ng the new arrangemen­ts and preventing unilateral action by one of several lenders that would jeopardise the new arrangemen­ts through enforcemen­t, setting off any credit balances or preventing interim use of overdrafts and other working capital facilities.

Reviewing your business’s financial state of health on a regular basis is a matter of common sense and prudence but even more so in these extraordin­ary times.

Farming businesses are not immune in the current crisis but the steps I have outlined should go some way in helping you form a realistic view of your business’s financial situation and to take steps to mitigate against funding risks.

‘Farming businesses are not immune’

 ??  ?? PRUDENT: Regular reviews of your business’s finance are a matter of common sense but the uncertaint­y of the Covid-19 pandemic means extra measures should be taken
PRUDENT: Regular reviews of your business’s finance are a matter of common sense but the uncertaint­y of the Covid-19 pandemic means extra measures should be taken
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