Shop around for best financial package while rates are favourable
Published July 4th, 2014
Farmers looking for a new loan or restructuring their finances should take advice and shop around for the most suitable deal as the range of funding sources is enormous.
By Matthew Anwyl, managing partner of Berrys
Even a slight variance in interest rate could make a big difference to the overall cost of a loan over its term.
The money markets have changed following the banking crisis and loans are now structured in a different way with costs often loaded up front in arrangement and set-up fees.
The long term outlook for farming remains positive and farmers need to get their businesses on a sound financial footing and take advantage of their current lower risk status to secure a good deal.
As agricultural valuers we have strong connections with the banking industry and have a wide network of contacts with most leading banks to help source finance for our clients.
Finance can be required for:
· long-term projects such as buying property – houses, farms, equestrian, forestry;
· Working capital and project-based funding: grain stores, chicken sheds, renewables projects or for diversification of a business
· Re-financing and moving to another lender
· Business restructuring ie partnerships, companies etc
· Matrimonial dissolution
The total cost of the financial package will depend on whether it is secured such as a mortgage or overdraft, unsecured lending or an HP finance agreement and we would advise farmers and businesses to review their finance arrangements and consider the mix of existing borrowing between overdraft and loan, aiming to transfer the ‘hardcore’ element of an overdraft to a more structured loan arrangement.
When acting for clients we can advise from a very early stage whether or not a proposal is viable and this may save the frustration, disappointment and cost of an unsuccessful application.
When drawing up an application we understand what the banks are looking for in terms of credit analysis and budgets and can submit an application to the most appropriate lender.
Banks will assess the application on criteria including as the serviceability of the loan and the security available. The usual requirement is a maximum of 70% loan-to-value but this varies between lenders.
We can then negotiate the loan offer with the bank.
Since the credit crisis, bankers have become more nervous of lending for certain projects and we often have to shop around to find a lender that understands a project such as a renewable energy installation and is prepared to structure a loan to suit.
Traditionally, farmers would have one bank taking a charge over the property but today it is often best to have a mix of lenders to suit your circumstances and what is best for the business.
It is still a very competitive market and agriculture is viewed as a secure and growing sector for most lenders. As such, competitive deals can be secured although interest rate is only one factor that should be considered. The devil is always in the detail.
Matthew Anwyl can be contacted at the Shrewsbury office of Berrys on 01743 271697 email firstname.lastname@example.org