What farmers need to know when applying for a farm loan

Agriland

6 days ago

As they progress into the second half of the year, many farmers will be considering what investments they can make on the farm and considering their financing options.
In addition to the elements to consider in relation to a loan itself, Teagasc is reminding farmers to think of the 'five Cs' of credit that lenders will use in determining the loan merits.
These 'five Cs' are: capital; capacity; collateral; conditions; and character.
In applying for a loan, Teagasc's farm management unit said some of the factors that lenders and borrowers must determine include: the amount of income the farm business will generate; expected annual expenses; potential for variation of income and expenses; timing of debt and cash flow demands; and family living expenses.
According to Teagasc, 'poor repayment indicators' can include: poor track record with the bank; excessive fixed costs; high variable costs; poor efficiency; poor financial planning; and too small a farm to generate adequate income.
When borrowing, a farmer has a right to know the following:
Annual percentage rate (APR);
Number of instalments;
Amount of each instalment;
Cash price;
Total credit price.
The borrower is responsible for providing true and accurate information on the application form, and repaying the amount borrowed in full and on time.
Teagasc outlines that the documentation needed for loans can include a balance sheet, and it is preferable if three years' worth of balance sheet results are available. Farmers should be prepared to explain all the figures on them.
Other documentation include: a profit and loss account; assets inventory list; all rent and lease contracts; and family living expenses.
Farmers should also have a business plan. Teagasc says this may be a full plan or whatever attempt has been made to appraise the effects of the investment on the business.
The plan usually involves a cash flow projection weighing up the costs and benefits involved.
Teagasc says that the key to obtaining credit is to be prepared and to anticipate what the lender may require. Farmers should be open and honest, and be ready to logically and factually defend the proposal.
When considering financing an investment, it is important farmers consider their options, and compare the specifics of a loan, such as interest rates, repayment term lengths, and loan approval times, among other things.
Agriland contacted a number of lenders operating in Ireland for information on their interest rates and approval times for farm loans.
Bank of Ireland's head of agri sector Eoin Lowry said that the bank "offers a wide range of agri-loan options, approving 80% of agri-loans under €120,000 within one to three working days, as well as banking 82,000 farm customers and providing 52% of overall lending to the agri sector".
"The Bank's Enviroflex sustainability-linked loans are now available to over 95% of Irish dairy farmers via 12 dairy co-op partnerships, and we are aiming to make it more widely accessible across the Irish agriculture industry to reward farmers with discounted finance for their sustainability actions," Lowry said.
"We continue to work with our agri customers through our specialist team of agri development managers and encourage customers to continue engaging with us so we can find a finance solution that works for them.'
Enviroflex offers a discounted variable rate of 4.49%.
Otherwise, the bank said that it offers an unsecured loan variable rate of 6.51% on farm loans.
AIB recently launched a new green loan to help farmers to transition to a low carbon economy.
The loan is available at a variable interest rate of 4.95% for amounts between €2,000 and to a maximum of €100,000 for each eligible loan purpose. It is repayable between one and seven years.
An AIB spokesperson said that for loans, 'where possible, we aim to have a decision within 48 hours of receiving all of the necessary information, excluding weekends and bank holidays".
"Over 80% of term loan requests are decisioned on the day the request is received," the spokesperson said.
A spokesperson for PTSB said that "depending on various factors, including loan purpose, term, and facility required, PTSB offers interest rates ranging from 4.062% to 7.5%".
"Generally, credit decisions are made upon receipt of all relevant documentation, and for larger more complex loans, decisions are generally within 15 working days from receipt of the required information," the spokesperson said.
"As always, we assess all applications for credit on a case-by-case basis, in line with our lending policy."
Cultivate is an initiative of a group of credit unions to provide loans to farmers.
Cultivate said that for unsecured loans, the variable interest rate is 6.55%. The typical APR is 6.75% up to €75,000 for up to 10 years.
Cultivate also offers secured lending of up to €300,000 for up to 30 years at a variable interest rate of 5.25%, typical APR 5.38%.
Cultivate said it "prides itself on quick loan approval times for farmers – within 48 hours".
Joe Healy, chairperson of Cultivate Credit Union and former Irish Farmers' Association (IFA) president, said that the "continued rise in demand for Cultivate loans reflects the resilience and ambition of Ireland's farmers".
Finance Ireland provides the MilkFlex and FundEquip products, which make up a significant amount of its farm finance for borrowers. It also provides funding under the Growth and Sustainability Loan Scheme.
Interest rates for MilkFlex and FundEquip are variable rates and subject to change in line with changes in Euribor.
MilkFlex provides finance for dairy milk suppliers, and a key feature is that it "helps protect farm incomes from the impact of dairy market volatility, seasonality and the impact of any disease outbreak".
Key features of the MilkFlex loan include: minimum loan amount of €25,000 to max €500,000; eight-year loan term; variable interest rate 4.5% above monthly Euribor cost of funds; and seasonal repayments from April–November to reflect seasonal milk supply curve.
Applications for Milkflex loans up to €500,000 can be issued within a matter of weeks, dependant on the availability of information from the borrower and their financial advisers, Finance Ireland said.