Taking the plunge to switch banks is not a move which should be undetaken lightly, according to professional services firm Ifac – which advises five key considerations which farmers should take into account first.
First off, the accountancy and financial advisory company notes that there can be “various reasons” to consider switching banks.
These range from difficulty obtaining funding to generational transition in a farming business, staff changes that affect banking relationships or a bank exiting a particular market.
Noreen Lacey, Ifac head of business development, outlined five areas to cover first, before “taking the plunge”.
- Current accounts and overdrafts;
- Loan repayments; and
- Infrastructure and support.
Starting with margins, Lacey said: “If you have a viable and profitable farm, refinancing may enable you to negotiate a reduction in fees and interest rates.
“However, it is essential to look at the overall cost and not just the headline lending rate as cheaper offers sometimes end up costing more when extras are included.
Turning to current accounts and overdraft, the Ifac advisor noted that switcher packs are available in banks and the transfer of direct debits and standing orders is part of the switching service.
However, she warned: “Care is needed on issues such as tax, VAT and BPS [Basic Payment Scheme] payments.
“Information on switching can be found on the Citizens Information website. If you want to open a new current account with overdraft facilities, you will need to specify the facility required, duration and purpose.”
She added that applications should include a cashflow forecast and budget with a sensitivity analysis showing the impact of input/output price changes and yield/output variations.
Continuing onto security, Lacey noted that, where secured loan facilities are required, the relevant land folios and deeds “need to be in order and, ideally, free of judgements or burdens”. Some banks cover a fixed amount of the legal fees associated with the cost of switching, she added.
On loan repayments, the Ifac advisor highlighted: “While agriculture still tends to be favoured by lenders, the ability to service and repay loans is a deciding factor for most banks.
“Farm accounts need to be up to date, with good historical performance figures, a clear business plan and a documented path for succession.”
Attention was also drawn to the importance of the term and the structure of the proposed loan, as well as the nature of the borrower – whether in the form of sole trader, limited company or partnership.
The borrower type is especially relevant when loans originally borrowed as a sole trader are refinanced by a limited company, it was added.
Finally, on infrastructure and support, Lacey said: “Online banking facilities, branch network and staff are other factors to consider.
Key questions to be asked, she said, include: “Who will you be dealing with? What is the experience of other farmers with the bank?
“Have you any feedback from your discussion group? If your business handles cash, how does the bank manage the associated practicalities/costs?”
Summing these considerations up, Lacey said:
“Once you have initial meetings or discussions with several banks, it is up to them to come back to you with a proposal – if they are keen to win your business, there will be some flexibility and elements of negotiation.
“Take your time and keep in mind “service and quality will be remembered long after price is forgotten,” she concluded.