With ongoing pressure on working capital there is a strong temptation to increase your overdraft facility but this is often the wrong decision, Andrew Troughton explores an alternative more flexible option.
A lot of lending is actually longer term than the typical 12 month overdraft term but not long or permanent enough to need a term loan which would typically be from 10 to 25 years. Examples would include livestock purchases, buying farm machinery, putting up new buildings and developing property.
There are relatively few products in the agricultural lending marketplace that try and bridge this gap.
The AMC offer a hybrid between a loan and an overdraft known as a Flexible Facility. This is based on a 5 year term so offers much more security than a 12 month overdraft. Unlike a standard loan, the payment can be varied each month with as little as £5 per month being paid. The loan can be completely repaid and then dipped into again, so working like an extension to the overdraft.
Andrew Troughton of Carver Knowles says, “Knowing when to ask for more money is always difficult and then how to structure it is another challenge. Quite a lot of borrowing gets stuck between an overdraft being too short and a term loan being too long. One approach has been to have some kind of HP arrangement but these can come with risk and high costs.”
“The Flexible Facility created a hybrid loan which is the perfect solution for some. We have seen it used for business expansion, machinery purchases and the purchase of seed and fertilizer”.
There is a 0.5% annual fee but this is less that most overdraft renewals that can be 1% or more. There is also a one off set up fee at the start of the loan.
The minimum loan is £30,000 with no maximum. Loans are based on a variable rate tracking the Bank of England base rate.
For further details contact Andrew Troughton or Julie Branfield for a free, confidential and no obligation discussion.