At a time when farm output prices are on the floor, low-cost easy-access loans are very welcome. While initiatives such as Glanbia’s Milk Flex and similar schemes rolled out by other co-ops, including Dairygold and Aurivo, have helped to lower the cost of finance for farmers, these new cashflow loans announced by the minister last week will be at even lower interest rates.

Will my bank offer these loans?

Although none of the pillar banks (Bank of Ireland, AIB, Ulster Bank) have officially committed to taking part, looking at their participation in other Government-backed finance schemes, it is very likely all three will offer these loans to farmers. It is understood the Minister for Agriculture will be meeting the banks to encourage participation and finalise the finer details in the coming weeks.

How much is available to farmers?

The total amount of the fund is €150m. It is likely that this amount will be fully drawn. However, it is unlikely that it will add to overall debt levels and that there will be an element of swapping of debt from high-interest loans, overdrafts or merchant/co-op credit to this lower interest rate option.

This fund represents around 20% of the finance advanced to farmers in any given year so it is a significant amount of money. Given that the average loan size is expected to be around €30,000-40,000, it should attract a lot of applicants.

How much can I borrow?

The maximum loan is €150,000 per farmer. Although there is no minimum, for practical reasons it is likely that a minimum of €5,000-€10,000 could be set. It is expected that given the short term (maximum six years) of these loans that very few farmers will borrow the maximum and that the average loan will be somewhere between €30,000 and €40,000.

It will really be only on large-scale operations where the €150,000 loans will be drawn down.

What can these loans be used for?

These are cashflow support loans. This effectively means they will be mainly used to pay off co-op or merchant debt. There is a strong case to be made that given that the majority of farm expansion (buildings, parlours, etc) was paid out of cashflow in recent years that some element of retro funding capital expansion through this scheme be allowed.

Can I finance stock?

Although there are no details, as it is termed a cashflow loan, it is unlikely that stock (cows, cattle, etc) will be allowed to be financed directly through this scheme.

Can I retro-fund farm expansion?

If a farmer did any farm improvements in recent years out of cashflow and now wants to retro-finance these, it is likely that it will be allowed under this scheme.

As a tillage farmer, can I apply?

The loan fund is open to all farmers. Unlike previous Government-backed schemes, tillage is supported in this scheme. This means that tillage farmers can clear expensive co-op/merchant credit and move it to a low-cost term loan.

What is the interest rate?

The interest rate is 2.95%, which is much more competitive that the average lending rate of 5-6%. However if looking at merchant or co-op credit it is much more competitive than the 12-14% rates on offer. The bank’s margin is built into the 2.95% interest.

What is the term of the loan?

The maximum term of the loan is six years, with the option of having a two- to three-year interest-free option. It is unlikely that many farmers would draw down the maximum €150,000 over such a short term and opt for alternative loans that may be at slightly higher rates to give more flexibility.

Is security required?

Although details are light, no asset guarantee will be required to draw down the funding. This should not be a problem for the banks to do as some already offer unsecured loans of up to about €60,000 anyway (depending on individual case).

It is likely, on a case-by-case basis, that they will look for security of amounts in excess of this.

How to apply?

First and foremost, farmers will need to show repayment capacity. A farmer will apply through one of the main banks (subject to them agreeing to enter). If a farmer has other loans, all these will be taken into account in calculating the repayment capacity. This may affect the amount of loan that can be drawn down.

What is the time frame?

The loans will not be available until early in the new year (January). All funds will need to be drawn down by September 2017 in order to comply with EU reporting requirements. It is hoped that there might be some leeway here. This will effectively mean that farmers can only apply for loans between January and July to allow for bank processing in order to draw down by the deadline date. More details will be announced in coming weeks.

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