Farm Ireland

Sunday 18 February 2018

Managing your banking relations can be crucial

Time spent preparing and perfecting your proposal can create a good impression on your bank manager and improve your chances of getting a loan
Time spent preparing and perfecting your proposal can create a good impression on your bank manager and improve your chances of getting a loan

Mark Doyle

Many business people depend on their bank to provide them with the finance required to run their business. Farmers are no different. Undoubtedly the level of credit available to Irish businesses has diminished significantly over recent years and credit is difficult to get.

The wider domestic economy is suffering at the hands of the current recession -- even relatively healthy agri-businesses. Sound banking relations are required in these difficult times to help farmers weather the storm.

Existing debt

For existing loans you have drawn down it may be pertinent to consider the following:

  • If you have debt on an interest only basis and are considering making capital repayments you might consider your options in this regard. If you think your farm will require debt finance in the future, consideration should be given to maintaining the existing debt which will improve your cash position. Credit may not be forthcoming when required.
  • If your existing bank debt is on favourable terms (e.g. a tracker rate) care should be taken to ensure the covenants of the loan are not breached which may allow the bank to hike the interest rate or impose some form of penalty.
  • Where possible the use of expensive overdraft facilities should be avoided. Consideration should also be given to converting existing overdraft facilities to a term loan.

If you are unable to meet your repayments you should meet with your financial advisor. The bank should then be approached to seek a compromise arrangement that you can work around. Don't bury your head in the sand.

New debt

There are three major factors for the banks to consider when making a new loan, namely, the financial viability of the proposal, track record and security. The proposal is the factor on which most work can be carried out and how you present your proposal to the bank is crucial. In this regard you should have the following information to hand:

  • A business plan;
  • Financial projections;
  • Current management accounts;
  • Information of any off-farm income.

Time spent preparing and perfecting this information can create a positive impression and improves your chances of obtaining a loan. With regard to banking security, this was an area where borrowers became particularly lax in recent times with people offering personal guarantees from themselves and their family. The fallout from these arrangements can be seen in the courts with increasing regularity. Great care and consideration should be given to what security is given to the bank for any loan. The worst case scenario where the farm is offered as security and the security is eventually enforced must be contemplated by the farmer. Competent legal advice should always be sought.

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Where bank finance cannot be obtained the less traditional routes may be considered. Most plant machinery can be acquired on finance lease or hire purchase; often the packages offered are reasonably attractive.

Cash deposits

For those farmers that are in the enviable position of holding substantial cash deposits there are two main issues exercising their minds; bank security and deposit rates. It's fair to say that people with substantial deposits have become more footloose and are willing to move away from previous banking loyalties. The banks that are benefiting most are those that fly a British flag.

In recent years there was a scramble among banks for deposits and the interest rates being offered were generous. This competition seems to have dissipated to some degree and the deposit rates being offered now are more modest. Banks that are seen to be more financially robust are trading on this strength and the interest rates they are offering reflect this.


Don't leave it to your bank to manage your relationship -- this is your responsibility should you wish to run a successful farming business. Ensure that your bank is always aware of any important developments concerning your farming business be these "good" or "bad". Don't be afraid to contact your bank on information in relation to finance and other business matters whether they are related to the farming trade or not.

Mark Doyle is a tax director at Grant Thornton

Indo Farming