Farm Ireland

Tuesday 12 December 2017

Credit Review Office proves help still at hand in obtaining loans for farm sector

Darragh McCullough

Darragh McCullough

One in 10 cases being considered by the Credit Review Office (CRO) are farmers, according to one of its directors, John Trethowen.

The CRO was set up in the wake of the banking collapse to help businesses with legitimate cases to access credit. In its first six months of operation, it has succeeded in securing €3m of additional credit facilities for around 120 businesses that were repeatedly denied extra loans from the banks.

"We are seeing that both banks and bankers are frightened about lending at the moment," Mr Trethowen told farmers at a Teagasc dairy conference in Athlone.

"They got it so badly wrong during the property bubble that they are scared stiff of making more mistakes in the future.

"As a result, the younger bankers in particular are taking a very rigid approach to any lending decision. We believe that by looking at businesses in different ways, it is often possible to still grant loans in a sensible way.

"We've dealt with 15-20 cases relating to farmers," he said.

"About 50pc of the applications that we receive are successful. A good portion are contractors who have amassed a series of bad debts. The rest tend to be farmers who got into ancillary enterprises, especially the ones that were connected with the building trade."

The CRO considers all kinds of loan applications up to €500,000 in addition to monitoring banking strategy.

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"Businesses only come to us after they have been turned down both on their initial application and after failing an internal review by the bank in question," said Mr Trethowen.

"We don't get hung up on the business's figures for the last two years. We're more interested in the financial performance over the last 10-15 years and what its potential is for the next couple of years. They can't have a 'more of the same' approach.

"In other words, they must be flexible in adjusting to the new realities.


"Current and future earnings is what it is all about and cash is definitely king," he added.

"Too many sound businesses got caught up in investing in sticky assets such as buy-to-let properties. We try to segregate out the part of the business that is actually earning cash and see if it deserves a loan.

"Regardless, you'll need up-to-date accounts, along with a number of ratios such as debtor to credit and earnings before interest, tax and depreciation."

Mr Trethowen also issued a warning to the farming community that is focusing on expansion over the next few years.

"One thing that farmers should not be tempted to do is finance capital expenditure out of cashflow," he said. "We've come across several examples where the farmer has embarked on an expansion programme without taking out any loan.

"Initially, everything seems to be going fine, but at some point they tend to hit the wall and it tends to happen suddenly.

"Dairy farmers in particular should also bear in mind that if they are planning to expand over the coming years, that there is a big lead in time before the extra money begins to flow from the initial investment. As a result, you will need to approach your bank well in advance of any planned investment so that they can understand where you are going," he added.

Mr Trethowen also cautioned farmers to factor in an increase in interest rates.

"It's pretty obvious that interest rates are only going to go one way over the coming years. Do your cashflow projections based on higher rates in the future," he advised.

The CRO director also predicted that the next challenge for the banking sector will be in relation to providing working capital to businesses that are recovering from this recession.

"That's going to be the next big row," he said.

"Working capital requirements would've been severely curtailed over the last number of years as businesses retrenched. As they begin to restock again, their working capital demands are going to put the bank's balance sheets under pressure."

Indo Farming