Too many people see their current account overdraft as a target, not a limit, according to Anne Marie Butler, Agricultural Manager, Ulster Bank, who urged farmers to know what their current account is for.
She said that it never ceases to amaze her the number of people who buy a tractor, or a family car out of the current account. “The current account is to manage the day-to-day running of the farm and it often can’t cope with such needs.”
The easiest part for many is getting the money approved, she warned, and the most important element for any farmer looking for a bank loan, she said, is their repayment capacity.
“Farmers don’t like cash-flow projections. But, the bottom line is to show repayment capacity. There is no point in having lashings of security if you don’t have repayment capacity. The maths have to stack up. But there is no point in the maths stacking up if we have no faith in the individual.
“We’ll always look for the last three years farm accounts and the living expenses and drawings – I’ve seen people live on air and others on a lot more than air. Its very important that the drawings figure is accurate.
“We had one farmer who had four daughters get married in four consecutive years and he paid for four weddings. That can diminish borrowing capacity. We need to see this loan can be serviced.”
And to demonstrate repayment capacity, farmers need to have a plan, and not just in their head, she said.
“A few people have a plan and it’s in their head, but you need to get that down on paper. We often also get plans like a thesis. But the plan often doesn’t reflect what they want. It’s very important that the plan reflects what you want, not what your planner or your neighbour thinks you want. A lot of people work off costings that their neighbour gave them, they put in a tank for x last year, but it’s easier to go back to a bank if it goes over budget if you are using your figures and your quotes.”
Speaking at the IFA ‘Business of Dairy Farming’ conference, she said that no dairy farmer has asked her ‘how much is that in c/L to repay?’ “I’ve been asked for the c/kg DW by pig farmers when they are looking at expanding, but no dairy farmer has asked me for the same detail.”
Her advice to those planning on expanding is to know you will probably run over budget and to keep things simple. “Anyone I have seen expanding, has run over budget. People have the best intentions and the best will in the world, but things change. People can get caught up in the bells and whistles that come with parlours and sheds. Keep it as simple as you can.”