Approaching a bank seeking a loan can seem like a daunting prospect, but agri managers are here to help support your farm business and growth ambitions so you can invest with courage and confidence.

The first step before undertaking any new investment is to ask is this right for me, my farm business and my family. The only way to find this out is by engaging the whole family and any partners in the business in this decision. It’s important to have buy-in from everyone involved before committing yourself, your family and your business.

I don’t know how to approach my bank

This requires no more than a phone call to your local branch to get the ball rolling. For large investments or a change in enterprise, we can arrange for an agri manager to visit your farm and guide you through the loan application process.

What do I need to prepare before contacting my bank?

Financial accounts are the starting point and should reflect the scale and overall profitability of the business. Underlying efficiency is always determined by what the financial accounts tell us about the business. The more complex the application the more information we will require.

How does the bank decide whether or not to approve my loan?

Rather than looking at the profitability in any one year, we assess repayment capacity based on the average profitability of the business over a number of years (the previous three to five years). This gives a truer reflection of business performance.

We look at both your personal and business financial and banking track record. Operating good accounts with appropriate credit days and keeping existing loan repayments up to date is a great start and tells us that you are a good financial manager and gives us confidence in lending to you and your business in the future.

How can I assess if I can afford the loan?

It’s important to understand the difference between farm profit and cashflow. The available farm profit generated in any one year may have to be allocated to other areas before the free cashflow available to fund new repayments is evident. For example, living expenses, tax payable, existing farm repayments and annual capital expenditure may all have to be deducted from farm profit before the free cashflow to meet new repayments is evident.

What are drawings?

Drawings are the living expenses that you and your family take from the business on an annual basis in order to fund family living expenses. It is important to understand how much in annual drawings you and your family need to take from the business each year.

Be careful, as often times it can contain other expenses relating to the business such as loan repayments, tax or non-reoccurring expenses (education, a family wedding, etc) which may not be usual and, if included in repayment capacity analysis, may have a negative impact on the ability to take on more debt.

How much of my own money do I need to introduce?

Ideally, 30% of the investment; however, where you and your business have invested in stock, farm development or land purchase or where you have accelerated the repayments of existing debt, this may be less.

Make a list of all the investments made by the business in recent years. Talk to your accountant and request a schedule of capital expenditure undertaken.

This information can enable the bank to fund greater than 70% of the cost in some cases subject to satisfactory repayment capacity.

How much security to I need to give?

Depending on how much you need to borrow and if the bank already holds security, this is assessed on a case by case basis. Talk to your solicitor to check what security is suitable and ready, ie where there are no issues with title, right of way etc.

When offering security consider future investment lending requirements – there is a cost in putting security in place so it’s a good idea to consider future requirements at the outset. It will benefit you in the future.

How long should I borrow the money for?

The term of the borrowing should be agreed with your bank to match the asset being purchased and the cash-flow of the business.

We would encourage farmers to term their loan over as long a period as is being offered from their bank. On variable rate interest loans there is the option to increase the annual agreed repayment structure if cashflow permits. Interest-only periods are available for periods up to 24 months.

Finally, it is important not to over-stretch you or your family physically, financially or emotionally. If it’s the right decision for you, your family and your business then it’s the right decision for your bank.

Bank of Ireland is regulated by the Central Bank of Ireland. Warning: lending criteria, and terms and conditions apply. Over 18 years only. The cost of your repayments may increase.

Susan Maher qualified with a degree in agricultural science in 1999 and is a qualified financial adviser. She has been working with Bank of Ireland since 2013 and can be contacted at susan.maher@boi.com or on 087-121 6469