With Brexit on the horizon, more farmers are looking to spread risk by investing back into their businesses. This means that the need to be able to demonstrate viability to outside lenders to secure new sources of funding is becoming increasingly important.
Keith McGuffie is a Senior Agricultural Manager at NatWest, advising 45 commercial customers in Cheshire and North Wales. He explains how data from services such as Promar’s Farm Business Accounts (FBA), can be pivotal in supporting bank lending decisions for agricultural clients.
“Over the last six months, we’ve received a higher number of requests for lending. Although some of this is no doubt driven by milk price, the ongoing uncertainty posed by Brexit means that more farms businesses are borrowing to build or diversify their income stream,” he says.
Access to profit and loss, cashflow forecasts and farm performance data can all help to understand how well a business is performing. However, smaller farms may not have this information readily available.
“This is where the FBA data and Promar’s expertise comes into play, as the due diligence we go through at NatWest means that it’s vital to have detailed information from the farm to back up the lending decision,” explains Keith.
Since returning to work with the agricultural sector in 2014, Keith has seen the working relationship with Promar increase, utilising data and insight to support the bank’s decision-making process.
“Although farmers will often take consultancy advice on feed and nutrition, they may not consider the benefits of taking wider business or financial advice. In some situations, we’ve actively recommended farmers take the services of a consultant to help provide this vital insight.”
Emma Thompson, Regional Manager at Promar, explains how FBA data has helped her customers.
“There are a number of reasons why a farm might need access to cash, from investment in the farm infrastructure or equipment, to increase cow numbers, or to diversify the farm business for example.”
“However, in order to secure the funds, you have to be able to demonstrate what cost the additional debt will put on the business and put a case forward to the bank on how you plan to manage this,” she says.
Having a benchmark to work from and an understanding of what is working, and what may be putting extra strain on the business is key. Cost of production is often a measure that is used by the banks to show how efficiently a farm is operating.
“It’s important to have complete transparency over your cost of production and be able to confidently demonstrate that you’re profitable.”
“There’s now more of a requirement to have greater transparency over financial performance and day-to-day farm performance, and FBA can provide both.”
She adds that fluctuating milk prices demonstrated over the past two years haven’t helped to demonstrate long-term viability.
“It’s all about giving the bank confidence, even through challenging circumstances, and having a sustainable plan in place to control the spend versus income when milk price is against you.”
Whatever the requirement for funding, it’s important to do your homework, says Emma.
“Consider the overall performance of the farm and use your consultant to support you to unravel the data, and put a robust business case together.”