New loan funding routes available for farmers

Farmers and agribusinesses have more options for securing loans after a few significant announcements made this week.

Cultivate Secured, a new product launched by participating credit unions, is a new secured agricultural loan for the development of Irish farms.

It is an extension of the Cultivate product, which is now a significant player in the Irish farm lending market, with over €100m loaned to date.

The product will offer a loan-to-value ratio of up to 80%, loan amounts of up to €300,000, and a loan term of up to 30 years. It will be focused on helping farmers to finance larger-scale investments, including land purchases or significant capital investment in buildings and farm improvement works.

Speaking at the launch event, Joe Healy, Cultivate chairperson, said “with the introduction of Cultivate Secured, we can now offer longer-term farm loans to our farmer members who are looking to invest in their farming enterprises.”

Stability loan scheme

Also this week, the Ministers for Enterprise, Trade and Employment; for Agriculture, Food and the Marine; and for Finance announced Bank of Ireland as the first lender to the market for the €500m Growth and Sustainability Loan Scheme.

The scheme, open to small and medium enterprises, including farmers and fishermen, will provide loans of between €25,000 and €3m for terms of up to 10 years, with up to €500,000 available unsecured, providing borrowers are investing in the growth and resilience of their businesses.

The loan scheme will target a minimum of 30% of the lending volume for environmental sustainability purposes.

The €500m loan fund will be launched in two phases, with the environmental lending being prioritised at the beginning with loans for general long-term investments available from December of this year.

Dairy target

Finance Ireland, the country’s largest non-bank lender, announced that it is raising the borrowing limit on its Milkflex product from €300,000 to €500,000.

The loans, which are unsecured, have repayment schedules that are designed to be linked to milk prices, with repayment amounts falling during periods of reduced milk prices and increasing as milk prices rise.

To date, Finance Ireland has loaned €300m to farmers under the scheme, which was launched in 2016, in conjunction with Glanbia. From 15 November, the rate on the loans will be one-month Euribor, plus 4.5%. That one-month Euribor rate is currently at 3.76%, meaning an interest rate for the loan of 8.26% at today’s prices.

While the introduction and extension of loan options for farmers is welcome, it is critical for any business to have a detailed financial plan in place before making long-term borrowing or investment decisions.

For many in the agriculture sector, making such a financial plan is almost impossible at the moment, as policy uncertainty is close to the highest it has ever been.

Adding to that uncertainty is the reality of continued high input costs, coupled with weak output prices.

Any decision to add to debt burden under these circumstances will have to be taken very carefully, and only after seeking independent professional advice.