We are currently in one of the most uncertain times for British agriculture that has been seen for well over 20 years. Every sector has had its difficulties in the past but the entire economy will be significantly affected with the global changes taking place. In 2017 alone Trump has become president, Article 50 will be triggered to start the process of Britain leaving the EU, and on a European scale there will be French, Dutch and German national elections. Whilst we cannot know the impact of these events the world remains uncertain and therefore every opportunity to de-risk your business should be explored. With the end of BPS on the horizon and the subsidy replacement unknown British Agriculture is at most risk of volatile markets over the next 5 years.
What to do – short term?
The first step is to review your current borrowing to make sure you are using the right products for your finance needs.
An overdraft facility is an appropriate way for funding short term working capital but only has a term of one year. An overdraft being used correctly should show swings in the balance from near the limit back to having a positive bank balance. At your annual overdraft review your bank will want to be re-assured that a ‘core’ debt is not building up in the overdraft, where a significant balance has been borrowed for a longer term. If this is the case then long term lending is the better option to de-risk your finance, protect yourself from an uncertain future and avoid difficult conversations at review meetings.
Alternatively if you are happy with the principle of an overdraft type facility and like the ability to dip in extra funds as and when necessary and would prefer not to have the annual review then maybe consider an AMC flexible facility.
What to do – Long term?
If you have a 20 or 25 year loan you need to ensure it truly is secure for the whole period. Most banks offer long term loans with a 5 year break clause. This effectively makes it a series of five year loans and a change in bank policy or other external factors may mean it could get terminated on the break dates. Given the events that are due to take place over the next five years it is time now to consider whether your banks agricultural lending policy is likely to remain the same in five years’ time, particularly when thinking of global brands and those that have a smaller agricultural service and may have other priorities post 2019.
How we can help
Carver Knowles are agents for the Agricultural Mortgage Corporation (AMC) who specialise in mortgages and long term loans for farms and rural businesses. AMC is the only agricultural lending organisation that offers lending in the long term. This is designed to meet the long term nature of the agricutlraul industry whether you want to fix the rate of interest for 30 years on an interest only or repayment basis or you want to keep the finance as cheap as possible by having a variable rate on a 30 year term, the AMC prides itself on the ‘lend and leave’ approach meaning no reviews or break clauses.
If you are looking in the short term to make your business more resilient to the upcoming changes and uncertainty through diversification or development and need short term working capital to fund a project then the flexible facility may be more appropriate.
Risk management and, more importantly, balance sheet management will be critical to the success of every farm business over the next five years so act now to secure your finance at the best possible rates.