Industry Eye: Some simple ways to improve your chances of getting a loan out of the bank

Naively, most of us involved with the rural sector have thought that as agriculture has performed relatively well over the last two years compared to other sectors in our economy that the banks would be delighted to continue lending agriculture lots of money at low rates and arrangement fees. But we are starting to see credit becoming increasingly more expensive and more difficult to get hold of.

Partly driven by BASEL II and the banks' need to hold larger deposits, arranging new mortgages or increases in bank overdrafts are more complicated and expensive. We are finding that the decision-making process and the ability to "negotiate" the rates is being taken away from individual bank managers and driven by head office and their computers!

So how can you make it a little easier to get credit?

1) Up-to-date set of accounts – banks are very keen to see the accounts as soon as possible to feed this into their computers (the decision makers!), particularly if they are showing profit and an increasing balance sheet; it helps massively to get better rates.

2) Annul budget – setting a budget drawing on the previous year's costs and anticipating forthcoming outputs, gives the bank a clear indication of the forecast profits before drawings and capital. If you need to spend capital to increase profit (e.g. irrigation to improve root crop yields), the budget will identify the impact on profit in the future.

3) Cash flow forecasts – understanding the availability of cash and its movements over the coming 12 months is key to expansion. We recommend that all businesses prepare an annual cash flow and review it at least monthly. If you can have it rolling on 12 months at a time, even better. It really does help a business to make informed decisions on spending and timing of sales and for a lender, it provides the comfort that you can repay the debt. Don't be scared by a spreadsheet; keep it simple and easy to modify!

4) Statement of assets – particularly if you need to arrange a new loan, you must understand your net worth. This is the figure that banks use to calculate how much they can lend to you! (They use the budget and cash flow to see how much you can afford to repay!) Personally, I would always want to know how much the business is worth and to see it growing in capital value from year to year.

An informed bank manager is a happy bank manager, irrespective of debt level; understanding why they need to get the credit for you is very important and should you have a high level of borrowings, keeping him up to speed with business decisions will make your life easier.

Louis Fell is a partner at chartered surveyors George F. White who operate throughout Yorkshire. Contact www.georgefwhite.co.uk