Farm Ireland

Friday 15 December 2017

How you can put the squeeze on the bank

Darragh McCullough

Darragh McCullough

We'd all love to be able to do a Charlie Haughey on the bank and tell them where to get off. But assuming none of us are likely to be future taoisigh, we will need to rely instead on a different set of tactics to extract the best deals from our banks.

Some buyer groups have secured excellent deals that allow them to borrow at rates lower than 2pc over the cost of funds. That's an all-in interest rate of 3pc. But it doesn't happen by accident. Here's the 10 steps your group needs to take.

1. Stay homogenous

The more in common the members of your group have, the easier it is for a bank to assess what your requirements are. If you are all dairy suppliers, the bank knows that there's guaranteed monthly cash-flow, and that stocks consist of cows and feed. Grain men will have a different overdraft requirement and stocks will vary depending on the time of year.

2. Get buy-in from members

This is an all or nothing scenario. It's no good telling a bank that your group does a certain amount of business and turning around after they've made you an offer to inform them that only half of the members are going to go with it. The deal will also fail if some members only bring some of their business to the deal. This has big implications. What if one individual reneges? The group will need to agree in advance that it agrees to cancel membership if somebody doesn't toe the line.

3. Appoint an outsider

Get an outsider to take all the details of the group. This is a bigger task than it sounds. It'll need to be somebody familiar with farm finance - it could be an accountant or an agri-advisor. But groups with experience in this area have found that individuals with expertise in banking more so than farming are best positioned to leverage a deal when it comes to the crunch. Confidentially is a big issue here but again this is where total buy-in and planning is required. Normally, members agree that none of their details will be accessed by any other member so that the coordinator is the only person with access to individuals' details.

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4. Get the data

Banks are interested in the numbers. The coordinator will need to able to show the bank what the total borrowing requirements are. This includes overdraft requirements, term loans, mortgages and investment (off-farm) loans. Only existing fixed loans will be ineligible for the deal. Turnover per farm will be important. Pension and life cover details will also be required. The total assets owned by the group (both farm and non-farm) are also necessary, with a breakdown of what proportion of these assets are already secured against existing loans. Rented land should be excluded. A questionnaire is the best way to collect all this data.

5. Decide which banks to approach

Not every bank will suit the group. Wholesale banks might have the keenest rates but have no retail branches. So where do you go when you want an ATM? These things need to be considered.

6. Send out briefing document

Once you have all the data collected and know what banks you want to approach, it's time to send out the bait. A one-page document simply explaining that a farm buying group with X borrowing requirements and Y turnover are interested in a meeting with regard to doing future business. There's no need to show all your cards at this stage.

7. Set up a meeting

If the banks are serious, they'll be in contact to set up an appointment. It's up to them to put real decision makers into that meeting. If they send out the minions you know they don't really mean business. Ideally they'll have at least an area manager present, along with their agricultural advisor to bridge the jargon divide. At least three members from your group should attend the meeting, preferably the finance committee who should already be comfortable with overall figures for the group.

8. Allow time

This process often takes six months to complete. The time consuming part is gathering all the data. Once you have secured a meeting with your bank, things should move pretty swiftly. Provided you have presented a well prepared briefing document, the bank will often know within two weeks what it wants to offer you.

9. Be on the level

Don't try to massage the facts. This isn't a case of getting better rates if you can paint a more favourable picture. If the bank thinks the figures lack credibility, they won't be long showing you the door. On the other hand, good clients always get money.

10. Know your own strengths

Banks have woken up to the value of good farming clients again. Good farmers have always been good payers and now that the property bandwagon has evaporated, banks are coming back around to the old reliables. Farmers have the added advantage of having rock solid assets in the form of land behind their businesses. This is the kind of collateral that banks want to have on their books now more than ever.

Irish Independent