Where next for farm and rural lending?

The Coronavirus pandemic and Government-backed loan schemes have brought into focus the number and diversity of lenders. With lending policies getting tighter and banks reducing access to individual bank managers too, Rob Lister looks at what will be important for farms and rural businesses looking for finance.

Range of lenders

The first Commercial Business Loan Interruption Scheme (CBILS) and Bounce Back Scheme loans were initially focused on the handful of High Street lenders and a few alternative lenders. Both schemes have now opened to nearly 100 lenders with a projected 25 still being accredited and expected to join.  

The number and diversity of lenders is substantial – but lending appetite among them differs. For example, some High Street banks might not be open to new lending customers until the Autumn. Private banks and alternative lenders are keen to attract new lending, provided it meets internal regulations and criteria.

To get the best finance deal it will be crucial to know the best lenders for different situations and needs. Many farm and rural businesses will have more options than they realise.

Now more than ever, the expertise of brokers or finance consultants who can access the whole finance marketplace will be key. We have close relationships with 35 rural and agricultural lenders and access to another 100 regulated lenders through the NACFB.

Customer support – particularly for repayment holidays

In the global banking crisis of 2007/08, a lot of banks and lenders had liquidity issues and it tarred all bankers with the same brush.

This time it’s different. The crisis has diverted banks and their managers to helping clients with mortgage holidays and government-backed loans to see them through this challenging situation. Banks, lenders and their staff have had little time to provide lending support to other businesses.

Some business will have accessed coronavirus related grants or loans and received free 6 to 12 capital and interest repayment holidays.  However, a cashflow squeeze could come when businesses need to make repayments. But banks can prevent this by offering to refinance these arrangements at the end of the interest-free period.

For customers, therefore, the right bank or lender support post-pandemic will be as important as support during the pandemic.

Customer service changes

A supportive lender who understands your businesses is crucial. A banking relationship manager needs to have proper conversations with clients to get a full picture of their financial status and business intentions. 

However, mainstream banks rarely have the time to do that anymore. As lenders move away from personal service and into direct offerings, annual reviews seldom happen, unless you are the largest of clients.  

Farmers still need and want to talk to experts who understand both farming and finance, and who can guide them on their business and finance journey.

Tighter due-diligence

We’ve written before how and why getting farm finance was becoming harder - and this included a higher scrutiny of cases due to lender credit conditions.

There will be even more caution from now on – and with future land values uncertain, changes in subsidy income and lower financial performance across most sectors, lenders will scrutinise applications even more thoroughly. They may even tighten loan to value ratios.

Banks and lenders will be more critical in assessing the affordability of any mortgages and of business bank statements. They will want to know how any CBILS or Bounce Back loans were used and outgoings have been adapted and they will look at any tax mitigation plans.

They will also assess personal liabilities including credit cards, delayed mortgage payments, overdraft, personal loans and credit ratings.

Quality, up-to-date financial data will become a 'must have' for any business. For successful requests for borrowing, it will become even more important to employ professionals who can present your data in the best way to lenders.

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All the R&BS team are sympathetic listeners, understand farming and help our clients navigate life’s challenges. We work closely with our clients to get a deep understanding of their businesses and prepare thorough lending proposals to put to the right lenders, so we help them get the best finance terms for now and the future.

All of which sets us apart from lenders, and our competition…