APPROACHING a bank seeking a loan can seem like a daunting prospect but we are here to help support your farm business and growth ambitions so that you can invest with courage and confidence.

1 Ask is it right for me, my family and my farm?

If you are making plans to invest to develop your farm, buy stock, purchase land or need a working capital loan, the first step always is to ask yourself if this is 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 and not to over-stretch you or your family physically, financially or emotionally.

2 Approach the bank early

It always helps to get the bank involved early. This requires no more than a phone call to your bank to get the ball rolling. For large investments or a change in enterprise we can arrange for an agri manager to visit your farm and guide you through the loan application process.

3 Get prepared before meeting the bank

A recent set of financial accounts are the starting point and should reflect the scale and overall profitability of the business. The more complex the application the more information we will require.

4 Understand the underlying profitability

Rather than looking at the profitability in any one year, we assess repayment capacity based on the average profitability of the farm business over a number of years (the previous three-five years). This gives a truer reflection of business performance and allows for weaker years due to unforeseen events such as poor weather, weaker than normal prices, etc.

5 Have a good track record with the bank

Banks look at both your financial and banking track record. Operating good accounts with appropriate credit days and keeping existing loan repayments up to date is a great start and tells us that you are good at financial management and gives us confidence in lending to you and your business in the future.

6 Understand the difference between profit and cashflow

It’s important to understand the difference between farm profit and cashflow. The available farm profit generated in any one year may have to be allocated to other areas before the free cashflow available to fund new repayments is evident. For example, living expenses, tax payable, existing farm repayments and annual capital expenditure may all have to be deducted from farm profit before the free cashflow to meet new repayments is evident.

7 Know how much you need draw from the farm to live

Drawings are the living expenses that you and your family take from the business on an annual basis in order to fund family living expenses. It is important to understand how much annual drawings you and your family need to take from the business each year.

Be careful as often times it can contain other expenses relating to the business such as loan repayments, tax or non-reoccurring expenses (education, family wedding, etc.) which may not be usual and if included in repayment capacity analysis may have a negative impact on the ability to take on more debt.

8 Ask what percentage of the investment needs to funded

Ideally 30% of the investment needs to come from own funds (savings, etc.). 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 less.

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.

9 Consider what security you need to give

This will depend on how much you need to borrow and if the bank already holds security. This is assessed on a case by case basis. Talk to your solicitor to check what security is suitable and ready – i.e., where there are no issues with title, right of way, etc.

When offering security consider future investment lending requirements. There is a cost in putting security in place so it’s a good idea to consider future requirements at the outset – it will benefit you in the future.

10 Consider how long to borrow the money for

The term of the borrowing should be agreed with your bank to match the asset being purchased or built along with the cash flow of the business. We would encourage farmers to term their loan over as long a period as being offered from their bank.

On variable rate interest loans there is the option to increase the annual agreed repayment structure if cash flow permits. Interest only options are available under our AgriFlex products for periods of up to 12 months.

Bank of Ireland is regulated by the Central Bank of Ireland.

Warning: Lending criteria, and terms and conditions apply. Over 18 years only. The cost of your repayments may increase.