For instance, when applying for bank finance, you need to provide sufficient, up-to-date information so the bank can make a fair and proper assessment of your application.
The bank generally does this in line with what are known as the “5 C’s” – Character, Capacity, Capital, Collateral and Conditions.
You will need a description of your farm business:
- Land: acres farmed, owned and/or leased
- Livestock: numbers and value for each of dairy herd, suckler cows, replacements; livestock saleable in the next 3-6 months and likely proceeds.
- Milk Quota: total litres owned, volume supplied in most recent quota years, expected monthly milk cheque.
- Buildings: describe milking parlour, dairy/suckler cow housing, slurry housing, grain store.
- Farm Machinery: owned, existing financial commitments, details for work for which contractor is hired.
- Feedstuffs: type, tonnes and value.
- Tillage: Acres, crop(s).
- Farm Compliance: would farm business pass a cross-compliance inspection, REPS, nitrates inspections?
You will need to give info on income and costs generated by the farm business as well as non-trading and non-farm income.
- Audited accounts for most recent years and farm budgets for the current year.
- Cashflow forecast for the relevant period.
- Non-trading income: SFP, REPS, area aid, State aid, suckler cow premium, welfare payment, waste management grant.
- Non-farm income: that generated by the farmer or spouse, contracting income.
- Costs/Expenses: farm business costs incl. annual hired labour, land
- Current assets: savings, shares, life policies, off-farm investments, pensions.
- Liabilities: bank debts, credit facilities, machinery hire purchase and leasing, co-op / merchant debt, farm contractors veterinary.
- Bank Statements: covering recent months, possibly longer if accounts with other financial institution.
- Tax compliance: Revenue Commissioners confirmation tax affairs in order.
An explanation of why the credit is needed and how it is to be used. Proposed repayment schedule, total costs of project,and outline of how it is to be funded.
An outline of the involved and steps being taken to deal with these, such as capacity to deal with overruns.
Banks assess any application for finance from a business under the following
(1) Character of borrower: As to your farm business, you must demonstrate that you are an effective manager with a good reputation.
(2) Capacity to repay: For credit, financial forecasts must show how repayments will be generated, your skills and off-farm income.
(3) Capital in the business: This is split between equity (the money that the owners and investors have put into the business) and the debt (money borrowed from banks or other sources).
(4) Collateral: This is the security given to a lender for protection in case the business cannot repay the loan; any one of a range of business and personal assets, such as buildings, vehicles, machinery and land title. If the farm cannot generate enough cash to repay the credit facility, the lender may have recourse to the collateral.
But for banks generally, recourse to collateral is always the last resort.
The farm is viewed as a key source of repayment, however, other sources of income may be taken into account — eg income from off-farm employment — when assessing an application for credit.
It is always advisable to seek independent legal advice before providing collateral against credit facilities.
(5) Market conditions: The trends in the agri-food sector and the overall economy are crucial factors in determining the success of your farm business.
Working with your bank
Your bank is there to help you achieve your business goals. Here are some useful tips to help develop a good working relationship.
Update your bank on how your business is performing and be open and upfront. Be proactive and contact your Bank to address any pressing issues at an early stage.
Present up-to-date financials on a regular basis and ensure figures are accurate. Avoid delays in submitting information if it is requested.
Your bank can also be an invaluable source of advice and information in relation to finance and other business matters.