John Fitzgerald, Agri Manager with Bank of Ireland in Munster examines the funding options available to farmers when investing on farm
It is well understood that the sustainability of any farm business requires a continuous level of investment. This ensures that a well invested farm can continuously improve its performance and efficiency to remain viable. At Bank of Ireland we are here to help support your farm business and growth ambitions so that you can invest with courage and confidence.
For many farmers investment is a continuous process. At times the investment can be funded through cash flow and at other times it may require the farm taking on additional debt. For example buying land or expanding the farm.
The first step before undertaking any new investment is to ask is this right for me, my farm business and my family. The only way to find this out is by engaging the whole family and any partners in the business in this decision. It’s important to have buy-in from everyone involved before committing yourself, your family and your business.
Focus on efficiency
Before considering any investment a farm should be at optimum efficiency at current output levels. Whatever investments are prioritised, the long term commercial and environmental sustainability of the business is paramount. Getting this balance right is key.
Financial accounts are the starting point and should reflect the scale and overall profitability of the business. Underlying efficiency is always determined by what the financial accounts tell us about the business.
Rather than looking at the profitability in any one year, we assess repayment capacity based on the average profitability of the business over a number of years. This gives a truer reflection of business performance.
The term of the borrowing should be agreed with your Bank to match the asset being purchased and the cash-flow of the business. We would encourage farmers to term loans over as long a period as being offered from their bank.
Most banks lend up to 70% of the current market value of land. However where you and your business have invested in stock, farm development or land purchase or where you have accelerated the repayments of existing debt this may be more. Make a list of all the investments made by the business in recent years. Talk to your accountant and request a schedule of capital expenditure undertaken. This information can enable the Bank to fund > 70% of the cost in some cases subject to satisfactory repayment capacity.
When considering borrowing for your farm, allow sufficient time for the application to be processed and funds to be advanced.
Table 1: Typical loan options
|Purpose / Scheme||Typical Duration|
|Working capital||Up to 1 year|
|Breeding stock||5 to 7 years|
|Farm development/ buildings||Up to 15 years|
|Land purchase||Up to 20 years|
Warning: The cost of your repayments may increase
Warning: If you do not meet the repayments on your credit facility agreement, your account will go into arrears, this may affect your credit rating which may limit your ability to access credit in the future
Level of security required and rate applicable, will be determined by the amount, purpose and term of facility, in conjunction with the nature and value of the security being offered. Over 18 years only. Lending criteria and terms and conditions apply. Maximum credit of €120,000 available for online applications