Industry Eye: Specialist support can be of use in gaining access to funding

Although some commentators predicted at the start of the credit crunch that the farming sector would be protected, it is fair to say the majority of agricultural businesses have struggled to access credit and refinance existing loans over the last few years.

From my recent experiences and understanding of the sector, banks do now appear to be opening up with many over the last three months appearing far more willing to listen and happier to lend. To get afoot in the door of a bank however, it is now more important than ever that business understands what they want to see.

Banks' heightened focus on risk has, for example, led to a far greater amount of financial information being required, as well as a standardisation of the information requested.

Informality has been replaced by formality and details concerning the investment "opportunity" need to be presented in a format expected by potential funders, including an overview of "investment highlights". Details on how any increased funding will be used, along with assumptions behind the forecasts, is also essential.

One option is for the information to be produced by specialist corporate financiers – most of whom will add credibility to the proposal by virtue of their existing relationships with major banks.

We recently worked with a farm requiring a substantial injection of finance for new buildings to help it meet new European Union regulations. The request initially met a warm response but it soon became clear that formal approval would only be granted following the production of a coherent business plan which ticked all boxes set out by the credit committee.

Banks have historically focussed on the security underpinning any lend and although this is still important, the primary

focus has shifted to serviceability.

Banks are now very anxious to ensure all capital and interest repayments can be met – even if thebusiness slightly underperforms.

Through building a robust financial model, sensitivities can be run which consider the cash impact of changes in trading performance.

Proposals should also demonstrate how sales growth will impact on working capital.

Although new opportunities to expand are frequently viewed by thebusiness as positive, banks recognise that growth often leads to short term cash flow pressures.

In a period of heightened nervousness, banks will require a clear understanding of what the level of increased exposure is, how it will be controlled and when the expansion will lead to a return to the existing cash position.

Modelling these impacts provide the banks with the comfort needed to support such growth.

Banks are certainly opening up for business – but they are not about to turn on a tap of cash for those in the farming community.

Those which demonstrate an understanding of their bank's requirements through the production of a credible proposalwill find their finance partner willing to reciprocate.

CW 7/8/10