Avoid the hidden costs when arranging a bankloan
When going for a big bank loan for a new shed or land, most of us will agonise over which bank has the best offer, whether we should go variable or play it safe by fixing and, if we fix, what rate or period we should spread the loan over. Why? Because at the end of the day, we want to try to save as much money as possible on what is likely to be one of the biggest outlays on the business.
But behind the interest rates and the cost of the annual repayments lie another group of costs that many ignore until it's too late. They may pale in comparison to the amount involved in the loan, but when you're stretched to the limit at the start of a loan period, surprise charges are the last thing you need.
- Engineer charges
Engineers? The bank will want a certificate from an engineer to prove that you are compliant with planning regulations. This can often be more complicated than it sounds since, to become planning compliant, the engineer will need to look at more than the new building going up. All buildings built after 1963 will need to have planning permission and be certified as such. Typically, an engineer's fee will come to €1,500-3,000.
- Solicitor's charges
Everybody expects that their solicitor will have some input in setting up a bank loan. It's when the bank's solicitor starts looking for money as well that people get a shock. In the recent past this was unheard of, but rogue solicitor Michael Lynn's carry on changed all of that. The best way to deal with this is to agree a fixed fee before you ever sign up to the loan. This leaves you in a much stronger bargaining position than trying to knock down a bill for a solicitor that has the power to delay your loan draw-down. Typical fees quoted tend to be around 1pc of the amount of the loan. However, this can be bargained down to to 0.5pc if you play your hand right.
- Unpaid bills
The bank's solicitor will have a list of questions that they will want answered. These will often be in relation to any rights of way through your farm or if the county council has a charge on any of the road frontage on the farm. However, in keeping with the times we now live in, the bank's solicitor may also look for copies of your most recent utility bill to prove that you are a bankable client.
- Arrangement fees
This is one that most banks will push hard on but it's worth fighting on because it certainly isn't unheard of for farmers to get all arrangement fees waived when setting up loans. Often these will be around 1pc.
Meetings with area managers and agricultural advisers, following up on correspondence between solicitors, waiting for appointments with engineers ... it all takes a lot longer than you expect. If you are under pressure to get a project under way, delays can also add up to significant additional costs. Make sure you plan ahead.