Banks 'choosier' about lending: What farmers need to do to access borrowing
A personal relationship with a bank manager was no longer enough to get approved for funding from the banks.
Mark Weaver, of Complete Land Management (CLM) tells Alex Black what farmers need to do to access borrowing.
Alex Black
Farmers and landowners will have to work ‘harder and smarter’ to access borrowed money, with lenders becoming far choosier about who and what they finance.
Concerns over Brexit and the economy were making banks increasingly cautious, according to Mark Weaver of farm business consultants CLM.
He said: “They are still keen to lend to rural businesses, but they want to see that people have the liquid assets to pay back a loan.
“This can be a problem for landed estates and rural businesses because they have never been very liquid and cashflows can be lumpy.”
Bank managers were now stress-testing proposals at ‘increasingly high numbers’.
He said: “I have typically viewed the ability of a business to pay back a 5 per cent interest rate as key, but some banks are now looking at a figure above this.
“It is obviously vital you have a sound business proposal to begin with, but it is also about how you present and package the information you approach a would-be lender with.
“More lenders are expecting to see, in ever-finer levels of detail, management accounts that prove figures, as well as your projections.
“They want reassurance, meaning you have to demonstrate liquidity and systematically take away the reasons a bank manager could say ‘no’.”
Having a personal relationship with a bank manager still helps, but increasingly it is not enough, he added.
“They certainly will not have a cup of tea with you and tick a box as they may have done years ago. It is all about marshalling a compelling case.
“This is an era of rapid change, so many farmers will need to access money to fund new projects, whether that is expansion, diversification or infrastructure improvements. “Funding loss-making enterprises needs to stop though.”
But Mr Weaver said even at 5 per cent interest, money was available ‘relatively cheaply’, particularly in comparison with some of the ‘eye-watering’ interest rates previous generations paid.
“Banking is changing, so farmers looking to borrow money will need to approach it in new ways,” he added.
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