Shropshire Farming Talk with Agricultural Mortgage Corporation
With uncertainty around the ongoing phasing out of the Basic Payment Scheme, the recent unpredictability of the weather, and volatility in commodity prices and costs, there’s a real lack of clarity of what the future may bring – something that’s at the forefront of many farmers’ minds.
Against this backdrop, we’re seeing a strong appetite from farmers who want to secure the long-term support of refinancing borrowing to help them achieve their future growth plans, representing nearly 17 per cent of total lending by value.
Refinancing can often form part of a wider financial health-check of a farming business, which will involve a review of its medium and longer-term ambitions and objectives.
And a good lender will work through this process to ensure the refinance is in the best interests of the business, whilst not concealing any deeper-rooted issues around cost structures or general performance.
With more farming businesses undertaking diversification projects, into tourism and renewable energy, restructuring an existing loan over a longer term with a refinance product can not only help to ease cashflow, but it can free up working capital to help the day-to-day running of a farming business, whilst also helping the farm to make investments. But it’s important to agree an achievable repayment plan from the offset.
Of course, as lenders, it’s vital to ensure that, when refinancing, the business will generate sufficient cash in the future to meet the farm’s lending commitment, and that the refinance term is appropriate to the life of any assets that were purchased with the original borrowing. Typically, land, buildings and improvements to a farm are funded over a longer-term, while smaller purchases like stock and some types of machinery can be more suited to a shorter-term loan.
But with high levels of volatility in both commodity and input prices currently, it can be more difficult than usual to predict the future strength of cashflow. And so, when taking out new loans or restructuring existing debt, it’s important for farmers to consider the terms of the finance to ensure they’re able to manage payments effectively.
When borrowing from AMC, terms can be available for up to 30 years and, when borrowing on a variable rate of interest, the customer is at liberty to make additional capital repayments at any point in time hence people can borrow over a very long term but then repay much sooner, if cashflow allows.
Farmers should consider the full range of finance options that are available to them and discuss the viability of their growth plans to ensure that their ambitions are deliverable.
Considering the current volatility within the sector, farming businesses need to ensure that they are best placed to evolve and adapt in order to achieve their long-term goals, whatever the future may hold.
Written by Andrew Connah, Regional Agricultural Manager for the Agricultural Mortgage Corporation (AMC)
