Talk now to help soothe simmering cash fears
Few would deny that UK farming is changing at an unprecedented pace.
Thirty years ago, the technology that is now employed in UK farming wouldn’t have seemed out of a place in a time-hopping scene from 1985’s film “Back to the Future”
Back in 1985 the effects of climate change would also have seemed equally incredible and, only a few years ago, any talk of the UK leaving the EU would been unthinkable. As with all industries, change is inevitable but it is perhaps the current rate of change which many find alarming.
Unfortunately, unlike Back to the Future’s Marty and Doc Brown, we do not have a time machine to warn us what else the future may hold, and, in the face of such uncertainty, the old advice has always been to “prepare for the worst but hope for the best”.
Perhaps in line with this sentiment, my colleagues at AMC and I are seeing a marked increase in customers coming to talk to us about structuring new debt or restructure existing finances. In many cases they are doing this to future-proof the financial structure of their businesses.
Many will also have grown up with the accepted wisdom being to “borrow over as long as possible but then repay as quickly as possible,” as extending the loan term limits the monthly commitments (with obvious cashflow benefits) but repaying quickly limits the overall interest costs of borrowing the money.
However, as interest rates have remained so low for so long, this principle may recently have been overlooked. But with so much political and economic uncertainty, many are now returning to this strategy in order for their businesses to more-robustly face whatever challenges the future may bring – be that climatic or political.
Agriculture is recognised very much as a generational business, and those who have a family member to pass their farming business onto are often looking for long term finance that can even cross generations, without being reviewed – one less thing to worry about when the handover happens. This is becoming more unique in the marketplace, as many banks now include, as standard practice, regular review points within long term loan agreements.
Borrowers looking to restructure in this way, in order to face the future more confidently, should, however, plan well in advance; attempting to do so when the economic background is less favourable will clearly be a much more challenging proposal.
The challenges of this year’s long wet winter and hot dry summer have aptly demonstrated how financially challenging such unpredictable events can be for many farming businesses. When overlaid with such a turbulent political environment, businesses may be well advised to initiate discussions with their regional agricultural manager or financiers now, regarding an appropriate debt structure, in order to more robustly face the future.
By Andrew Connah, AMC Regional Agricultural Manager
