Farm finance health check

It is now over a year since the Bank of England cut the bank lending base rate to just 0.25% in the wake of the EU referendum result. We are now seeing reduced finance costs on many of the accounts we are currently preparing as a consequence, helping to boost profitability for those businesses heavily reliant on debt finance. How long interest rates will remain at this level is, of course, uncertain and with interest rates at record low levels there is a danger that complacency will set in.

We have set out below a number of questions that all farmers should ask themselves, so that they are not caught unawares should there be a sudden or unexpected change in circumstances.

• Is the overdraft facility sufficient to cover working capital requirements for the year ahead?
• Are lending rates appropriate given the business track record and security on offer?
• Is the business generating sufficient cash to meet scheduled debt repayments?
• Would the business be vulnerable to an unexpected rise in base rates?
• Is the balance between fixed and variable rate lending appropriate for the risk profile of the business?
• If debt is increasing are you clear why this is the case?
• Is the rent and finance cost per acre reasonable for the output of the farm?
• Would the business still be able to meet its finance obligations if there was a significant reduction in subsidy income?
• Do you have a good relationship with your bank?
• Are you able to sleep at night?

If you answer “No” to any of the above questions then a review of your farm finances would certainly be worthwhile to ensure that your business remains profitable and viable for the long term. Please feel free to discuss the matter with your normal EQ contact or speak to one of our EQ Agriculture team today.