The UK economy is about to go through one of the most uncertain periods in recent times and it is likely to significantly affect the agricultural industry in particular.
With global changes taking place this year including Trump coming to power, Article 50 being triggered and with French, Dutch, and German national elections on the horizon, we are certainly living in uncertain times.
With these events in mind and the end of the Basic Payment Scheme less than three years away, every opportunity to de-risk your business should be taken to ensure that you are in the best possible shape to see through the next 5 years.
The short term view –
Review your current borrowing to make sure you are using the right products for your finance needs.
An overdraft facility is a good way of funding short term working capital but only has a term of a year and comes with annual reviews with your bank manager.
At this review you will need to show that no ‘core’ debt is being built up, so if used correctly the balance should move from being close to the limit back to having a positive bank balance during the course of the year. If this is not the case then looking to shift some of the overdraft to long term lending may be a better option to de-risk your finances and avoid a difficult conversation at review time.
However, if you like the idea of having a short term facility that works the same as an overdraft, to take on more land perhaps or to do up a property, then an AMC flexible facility could be for you, with no annual reviews and a competitive rate it is an option many farmers are not fully aware of.
The long term view –
If you have a 20 or 25 year loan you need to ensure it is secure for the whole period. Most banks offer long term loans with a 5 year break clause. This effectively makes it a series of five year loans and a change in bank policy or other external factors may mean it could get terminated on the break dates.
Given the events that are due to take place over the next five years it is time now to consider whether your banks agricultural lending policy is likely to remain the same in five years’ time, particularly when thinking of global brands and those that have a smaller agricultural service and may have other priorities post 2019.
How we can help?
Bruton Knowles are agents for the Agricultural Mortgage Corporation (AMC) who specialise in mortgages and long term loans for farms and rural businesses. AMC is the only agricultural lending organisation that offers lending in the long term.
This is designed to meet the long term nature of the agricultural industry whether you want to fix the rate of interest for 30 years on an interest only or repayment basis or you want to keep the finance as cheap as possible by having a variable rate on a 30 year term, the AMC prides itself on the ‘lend and leave’ approach meaning no reviews or break clauses.
Risk management is likely to be critical to the success of your farm business over the next five years so act now to secure your finance at the best possible rates.