Strong demand for farm building loans
In particular, I was keen to find out how banks are gearing up to facilitate farm production expansion, as farmers look towards the elimination of milk quotas in 2015.
Donal says that farmers are becoming more active, and that a good deal of applications are now coming in for farm building loans.
With the huge popularity of the farm waste management scheme grants around 2007 and 2008, there had been a lull in farm building development after that time, somewhat exacerbated by the severe falls in milk prices in 2009.
However, there seems to be more interest now in farm building development, as some farmers, and dairy farmers in particular, are gearing up for expansion.
Expansion for the typical dairy farmer can involve purchase of land, installation of new farm buildings, or upgrade of existing facilities, with different forms of finance available for each.
The message that came loud and clear was, “The repayment term of the loan will ideally be designed to tie in with the economic useful life of the asset being funded”.
Donal noted also, “Loan repayments can be tailored to suit the cash flow cycle of the farm.”
On the interest rates involved — Donal said, “Interest rates are negotiated on an individual case-by-case basis with customers.”
So the message is, check with your own branch about the rates that would be available to you.
(The headline AA overdraft rate correct at Apr 12 was 7.85% per annum variable.)
On the factors involved in assessing loans, AIB is currently using a budgeted milk price of 28c/l, given the likelihood of increasing price volatility in that market.
Another valuable insight into the loan assessment procedure is that you shouldn’t base your plans wholly on milk price.
“Milk price is only one component of the evaluation when assessing applications for finance from dairy farmers, and must be viewed together with production costs to give a realistic assessment of repayment capacity.”
“The difficult farming year in 2009 highlighted the importance of financial planning on farms.
“When considering farm investment, farmers should ensure that their investment plans have been stress tested to cope with periods of depressed commodity prices.”
On the Single Farm Payment, Donal noted, “The European Commission’s CAP reform proposals are currently only proposals, and have yet to be negotiated in the Council of Ministers and the European Parliament and, indeed, the overall EU budgetary framework has yet to be decided in the European Council.
“As such, AIB has spent considerable time analysing the potential outcomes, but has not yet finalised their strategy for assessing the future value of Single Farm Payments for long-term funding proposals.”
I challenged Donal in relation to the finance of machinery, given recent rumours that banks were unwilling to finance second-hand machinery.
However, I was pleased to hear that AIB’s asset finance team are lending for both new and second-hand machinery.
Donal was keen to highlight that AIB has a positive medium-to-long term view of the agri-sector, and is committed to supporting the growth and development of the industry into the future.
As with all loans, lending criteria, terms and conditions apply, and Allied Irish Banks plc is regulated by the Central Bank of Ireland.
As always, each individual’s circumstance should be looked at for the best advice. Your questions on this and other farming tax issues are welcome.
