Farmers have been applying in large numbers for the low-cost loan scheme which was announced by Minister for Agriculture Michael Creed in the budget. At this stage almost half of the €150m total has been applied for.
The participating banks, AIB, Bank of Ireland and Ulster Bank, have all said they are seeing huge demand but expect this to reduce once the initial wave of applications is dealt with.
The scheme, which is the first of its kind in Ireland, was created by leveraging the €11m made available under the EU’s exceptional adjustment aid for milk and other livestock farmers along with €14m in national funding.
The scheme was designed to offer low-cost unsecured loans to replenish working capital at 2.95% interest to farmers, up to €150,000 for up to six years, with an interest-only period of up to three years. The rate is attractive at a 0.5% to 1% discount to what’s on offer at the moment. Another key feature that is making the loans attractive is that there is no security required. This means that it should be a straightforward and relatively fast application and approval process. Once approved, funds will be available to farmers within two to three weeks.
The loans can be used to pay down expensive forms of credit such as merchant credit and other short-term financing facilities. The loans may not be used for refinancing existing term loans or new investments or buildings that were built since the new year, but can be used to retrospectively fund development that has taken place out of cashflow.
So what can these loans be used for?
Stock
1. Last year, I bought replacement heifers and new suckler cows with money in my current account. Future investment in breeding stock is not permitted. However, as this investment in breeding stock occurred before 31 December 2016, it is eligible.
2. I have been increasing my breeding stock (dairy and beef) numbers with replacements from my own farm over the last two years.
Yes, they are eligible, as they are breeding stock and past investment.
3. Last autumn, I bought cattle to fatten over the next 12 months with funds in my current account. Yes, these are eligible as they are seen as trading stock. Note the minimum loan term is 12 months.
4. I bought fattening cattle nine months ago from cashflow through my current account and I don’t want to sell those cattle at the moment because of poor prices. Yes these are eligible, over a minimum 12-month term.
5. I have a revolving credit facility which I renew each year to purchase non-breeding livestock. Yes, these are eligible once the term is 12 months or greater.
6. I want a stocking loan for five months to purchase store lambs for summer grazing. No, this is not eligible as this is for less than a 12-month term.
Fertiliser/feed/tax/working capital
7. I have a number of bills due in the next few months including feed, fertiliser and diesel. Yes these are eligible.
8. Can I refinance a current stocking loan that may be at a higher interest rate? This is not allowed.
9. Can I fund current fertiliser purchases over the maximum term of six years? No. Typically this is only allowed for a maximum of one to two years. However, if you owe a merchant or co-op for fertiliser going back a number of years, the bank may consider a longer term on a case-by-case basis.
10. I paid my preliminary tax liability for 2016 last October using funds from my current account. Yes, this is eligible. As it is a recurring annual expense, it typically can be financed up to 12 months.
11. I took active steps to reduce my tax bill in 2016 by buying fertiliser. Yes, this is eligible and the fertiliser can be typically financed over 12-18 months.
12. Last year, I reseeded 10% of my farm and paid for the seed with funds from my current account. This is eligible and can be financed over a number of years.
Machinery/farmyard/drainage
13. I built a shed last year from funds in my current account. Can I now finance the shed? Yes, once you have invoices to show the cost. However, the building works must have been completed during 2015/2016. If building was started in 2017, it will not qualify.
14. I built a straw and cattle shed last year costing €40,000 and paid for it out of my current account. Yes, this is eligible and can be refinanced up to the maximum 72-month term.
15. I bought a secondhand tractor for €30,000 last year with funds in my current account. Yes, this can be refinanced once it was bought in 2015/2016 and has no other finance on it. It can be financed typically over 36-72 months.
16. I have three years’ finance remaining on my tractor. Can I swap the higher interest finance on this to this low-cost loan? No, you are not allowed to refinance existing loans.
17. I bought a tractor last year on hire purchase (HP). The interest rate on the HP is higher. Can I refinance on the low-cost loan? No.
18. Last year, I drained part of my farm and paid for this with money from my current account. Yes, this is eligible.
19. I want to apply for a loan to build a new shed in the coming months. No, this is not eligible and these loans do not cover future farmyard development.
Costs and penalties
20. Is the interest rate fixed? Yes, at 2.95% per annum.
21. Is there a penalty if I repay the loan earlier than the initial term? Even though this is a fixed-term rate, there is no penalty, therefore you can repay the bank early if you have the funds.
22. How much would a €30,000 loan cost me over a three-year term? Over a three-year term, it will cost 36 monthly repayments of €871.68. The total cost of credit is €1,380.48.
Approval
23. How do I maximise my chances of getting approved? You need a full up-to-date set of accounts, and information on what the loan is needed for, such as proof of expenditure on capital items you want to finance, such as sheds or tractors.
24. Should I ask for more than I want, on the expectation of getting part-approval? No, the bank will look for proof of what the loan is required for so the simplest thing is to ask for the amount you need.
25. Do I fill in the application at home, in the bank or with my accountant? Your first step should be to talk to your bank branch. They have details and application forms. You may then need to talk to your accountant about details on the form.
26. Will the bank ask to see my accounts? If you are a current customer of the bank, one year’s set of accounts will be sufficient. If changing bank, they may require up to three years’ accounts.
27. Is there an age limit for older farmers? No.
28. What other/existing borrowings will be taken into account? All loan applications will be assessed on existing borrowings and ability to repay all borrowing commitments.
29. I have an outstanding superlevy bill. Is this eligible? Yes.
30. Will the bank accept security, to increase my chances of getting this low-interest finance? No. This is a non-secured loan.
31. Can I avail of this finance to replace other loans? No.
32. Is there any difference between the three banks in the way they distribute the loans? There should be no difference as the underlying terms are determined by the SBCI.
33. Will the bank consider personal borrowings already in place? Yes, the bank will look at all other borrowing commitments.
Key points