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The Grass is Greener
Mark Bracegirdle FCCA FMAAT |
Published in Farmer Trader
Issues 126, 130, 131 & 135
Feb - June 2007 |
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If words were associated with colours it would be tempting to pair bureaucracy and Brussels with brown, with DEFRA a definite grey and for finance - who knows. The point is when it comes to agriculture, farmers want to farm and not be bothered about a useless mound of paperwork that achieves the square root of absolutely nothing at all.
It is for this reason, perhaps, that many farmers may have stuck with the clearing banks for their financial needs. Often they have a business development loan and an overdraft with the bank - talk about all their eggs in one basket! Once a year there will be the annual review, the annual charge and the production of facts and figures so that the bank can make a decision on whether to continue the overdraft for the next year at the current level or at all. The bank can not only see the whole picture but if an overdraft is creeping up and does not reduce then this debt is as much core borrowing as any long term loan - the difference is, who would borrow on terms where the lender can call in the debt whenever it feels like it and where each year the borrower goes cap in hand to the lender, with a pile of statistics, asking for another year's grace?
It makes sense to do two things where there is a creeping overdraft or indeed any overdraft and it is important to act with speed if the overdraft is at the limit, or where the bank is applying any pressure.
Firstly, it might be wise to consider a term loan, with a different lender, to replace current debt and raise any money required as needed. This is not as paperwork hungry as farmers may think and a good intermediary will be able to produce all the paperwork. There are lenders who provide mortgages without any evidence of income and so being a statistician for the bank becomes a distant memory and it is surprising just how competitive interest rates can be. It could be possible to raise extra funds with no extra outgoings per month.
Secondly, it pays to have more than one bank account and it is good advice for any business to have more than one account to continue trading in case one bank decides it is going to call in its overdraft. Not only that, there are certain banks that may offer lower charges or, under certain conditions, no charges at all.
Most importantly, it is wise to consider all the options when raising finance whether for working capital, plant and equipment, consolidating, development or any other purpose. Relying on one source just because it seems easier is not the best policy. Farming has had more than its share of challenges over the last few years and there are lenders, on superb terms, offering finance irrespective of credit problems.
In going back to the colour theme the grass is very definitely green. It may also, for once, be greener on the other side - don't be bashful, seek and ye shall find.
Mark Bracegirdle FCCA FMAAT
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