A five-year plan, properly put together, that is understood by and applicable to the farmer is crucial for a successful business.

It is also important for a farm loan application, AIB’s Liam Phelan said.

“When reviewing applications for loans, the first thing I’ll say is that no two are the very same.

“Every farm system has differences, meaning that applications will be different,” the regional agricultural advisor said.

What determines approval?

Phelan explained how previous historical farm accounts are very relevant in how the bank assesses the proposal.

“Historical accounts give a good indication to the bank as to what level of efficiency the farm business has previously operated.

“A good beef and tillage farmer, that has a proven track record, will be more likely to succeed in a new dairy scenario.”

Aside from the accounts, projections and plans are of utmost importance. “Preparation really is key,” Phelan explained.

“When projections and plans are made, it’s important that the applicant has factored in a ‘stressed milk price’ situation in the case of a dairy farmer applicant.

“A strategy for repayment needs to be made, even in times of poor prices.

“The plans and projections have to be realistic. If they’re not it’s very difficult for anybody to issue a loan.

“For the above reason, we really have to interrogate the business and make sure we know every detail about its functionality, efficiencies and weaknesses.

How the farmer plans on overcoming challenges, such as poor farm-gate prices or internal weaknesses, are also very important, he added.

Cash flow is one of the most important parts of any business. Inadequate cash flow can put serious pressure on early-stage/expansionary operations.

In the first three years of the loan being obtained, cash flow is crucial to the success of the business, he said.

How is the money given to the farmer?

The banks typically pay out loans in arrears, subject to receipt of suitable invoices from contractors/creditors. As soon as there’s an invoice from the building contractor, AIB pays the cost.

According to Phelan, a well-structured loan is typically paid back to the bank over the “useful life” of the asset in question.

“For example, the useful life of a milking parlour is 15 years. The loan for the parlour would be structured and termed out over 15 years.”

Phelan commented on how Irish farmers, in general, don’t like taking risks.

“Farmers in this country are typically risk averse. They like to pay off bills as quickly as possible. This can be good, but it can also cause problems with cash flow further down the line.

“Financial discipline is very important for all new start-ups,” Phelan said.


AIB assesses proposals on the farmer’s ability to repay loans from ongoing operations.

Banks typically lend 70% of proposed spend, but in many cases farmers won’t have 30% of a cash input –  as much of the equity is reinvested in the farm.

In this scenario, farmers may need to use land as their equity to the deal.

Phelan advised that there are costs and potential time delays that can delay the draw down of facilities. This should be discussed with the client’s relationship manager at the outset.


Phelan finished by saying: “It has often happened that the farmer has come to the bank looking for more money. They didn’t allow themselves a contingency fund.

“Hidden costs meant that they’re now short on money. It is vital that a contingency fund of 10-15%, on top of the funding needed, is built into the loan to allow for such instances.”