Farm Ireland

Friday 24 November 2017

Save big by securing an EU investment bank loan

Impressive savings in interest on loans as banks obliged to offer rates at least 0.65pc lower

Caitriona Murphy

Caitriona Murphy

Ambitious targets for expansion of dairy, pig and poultry farms set out in the Food Harvest 2020 report have focused farmers' minds on farm investment.

In most cases, farm investment equals farm finance so the first step in farm expansion is likely to be a visit to the local bank.

One of the most important questions to ask the bank manager is whether your investment will qualify for the European Investment Bank (EIB) loan.

AIB, Bank of Ireland and Ulster Bank have received around €300m in discounted funding from the EIB to allow them to offer cheaper loans to expanding business.

The interest rate charged on an EIB loan is calculated by each bank individually but must be 65 basis points lower than the rate that would apply to the loan if the EIB were not providing a discount, according to the rules of the scheme.

A spokesperson for AIB, said its rate for EIB loans was calculated as the variable base lending rate plus 2pc.

For example, at a base lending rate of 0.921pc, a farmer could expect to pay a rate of 2.921pc on an EIB loan from AIB.

AIB has already used up its first tranche of €100m and has applied for a second tranche of €150m from the EIB, although this has not yet been approved. However, the bank is continuing to take applications for EIB loans, the spokesperson said.

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Farmers took up approximately one-third of the first €100m in EIB funding to the bank, and demand from the farming sector was still strong, she added.

A spokesperson for Bank of Ireland said its EIB loan rate, based on matrix rates, was 65 basis points less than the customer's current rate. For small business customers, the rate would be 4.09pc, after the EIB discount of 0.65pc was applied.

Details on the uptake of EIB loans from Bank of Ireland were not available last week, although the spokesperson said the first €100m had been fully allocated but not fully drawn down yet.

"It is possible that some of that €100m may not be drawn down by the people who were approved for it," she added.

An Ulster Bank spokesperson said it calculated the EIB loan interest rate as the normal interest rate that would apply, minus 1pc.

The normal interest rate would depend on the risk profile of the individual customer, she added.

Demand from the agriculture sector has been strong for the first €100m from Ulster Bank and the bank was actively considering availing of further funding when appropriate, she confirmed.

The EIB loans are available for almost all farm investments, but will not cover land purchase, loan restructuring or provision of working capital to the business.

In the case of a dairy farmer, for example, the purchase of a new bulk tank, milking equipment or even additional breeding stock would be eligible for an EIB loan.

However, buying land or buying cattle for re-sale would not be eligible.

Pig and poultry farmers are entitled to apply for EIB loans to cover the cost of upgrading their housing to meet EU regulations.

EIB loans are available to small and medium businesses, sole traders, partnerships and limited companies with less than 250 employees.

The conditions of financing such as interest rate, grace period and loan period are decided by the respective EIB partner bank, in this case AIB, Bank of Ireland and Ulster Bank, while loan periods typically range between five and 12 years.

Irish Independent

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