Matt Long, Relationship Manager at Clydesdale Bank, Bury St Edmunds discusses banking and why serviceability remains the key in June’s guest blog.
The ever changing world of farming continues to challenge and drive farming businesses, their professional service providers, and affiliated businesses to act at pace, with an eye on the future, and most importantly with a need to build a sustainable business. This has never been truer than when looking at the banking services market.
It has been traditional to see banks offering a platform to borrow by which land or collateral is offered to secure any borrowing with, at times, the issue of affordability not ranking quite as highly. Whilst in certain circumstances this approach may be taken with a known debt reduction situation, the most important assessment when looking at a business and a potential lending package is, without doubt, its ability to a) service the interest both with the back drop of low interest rates, and also on a sensitised basis allowing for interest rate rises; and, b) the strategy to reduce and ultimately repay the capital element of the lending.
The credit crisis in 2008 has provided lenders with the opportunity to take a substantive look at the way they lend, always ensuring they act with responsibility to their customers at all times.
If bank lending is secured it may well mean that the business is able to attract lower lending margins, but if the debt cannot be serviced then serious questions need to be asked by all parties as to whether the transaction should be responsibly undertaken.
The key to understanding whether a particular purchase of an asset, or increase in facilities should be considered by farmers is to have early discussion with their bank. All lenders want to see British agriculture flourish, and giving your bank an early insight into potential opportunities and / challenges will form the bedrock for a meaningful, practical and constructive discussion.
Whatever the case, it remains vital to ensure the business can service it debts in a way that allows the core business to be protected and not put at risk.
The next step
If you would like to discuss this article further or speak with a business and finance specialist, please contact the Clydesdale Bank team on 0800 783 1100 or via their enquiry form.