While Ireland’s economy has recovered strongly from the financial crash in 2008, there are still major challenges facing many Irish households, including farm families, dealing with high levels of debt.
While Irish farmers tend to be very lowly borrowed in comparison with their EU counterparts, there is still significant debt on some farms that is a legacy from the Celtic Tiger years. During the boom years, land prices ballooned to unprecedented levels, which left many farmers with high debts.
There are many instances throughout the country where people may have bought land at inflated prices in the belief that the property held commercial or residential potential. This land may now have no commercial potential and is valued much lower than it was purchased, leaving the borrower in negative equity.
In more recent times, dairy has driven the increase in borrowing levels. Irish farmers have borrowed more as they expand existing dairy farms or converted to dairy for the first time after the end of milk quotas.
To expand or grow any business, borrowing money from a financial institution is almost always necessary and a natural part of any business plan. While the majority of borrowers successfully repay their loans, sometimes there are cases where farm businesses get into difficulty repaying borrowings. This is heightened in an industry where prices are volatile particularly in agriculture.
Whether you owe €1,000 or €1m, the one thing that a bank or lending institution wants to see from a customer under pressure with repaying a loan is communication and engagement
In recent years, there have been cases where farmers have run into difficulty with large borrowings. Coupled to this, some farmers have seen their stressed loans sold off to what are known as vulture funds. While the majority of farmers borrow money with the best intention to pay it back, there are situations that lead to the loan going bad. Situations like these are extremely stressful but it’s important to remember that there are always options.
Engage with your lender
Whether you owe €1,000 or €1m, the one thing that a bank or lending institution wants to see from a customer under pressure with repaying a loan is communication and engagement. The more you engage the better.
After all, the bank wants to get its money back so it’s in the best interests of the lender to work pro-actively with customers under pressure. For the borrower, the stress of worrying about missed repayments on loans can be crushing. A constructive conversation about the situation with the bank manager can take a huge weight off a person’s shoulders and help show the road out of the problem.
Conversely, when a borrower does not engage with the bank it throws up red flags for the lending institution while also placing huge stress on the person who has borrowed the money.
Deteriorate
If engagement between the borrower and the bank deteriorates, then a situation that was very manageable can quickly become much more fraught. If a bank finds that a loan made to a customer is not performing or that a customer is not engaging with the bank, then the loan may be transferred to a division of the bank that specialises in handling distressed loans.
The sole purpose of this arm of the bank is to recover loans that the bank has serious concerns about. Again, engagement is the best course of action to try to work out what repayment capacity exists in a business and form a plan to work a way out of the situation.
However, it’s important to note that engagement must be followed with some actions on the part of the borrower. The last thing a lender will want to see at this point is a customer agreeing to take a number of steps to address the situation only to find in six months’ time that nothing has been done.
Receivership
If no progress is made above, the last resort for the bank may be to appoint a receiver to take possession of the farm or business and assess the viability of the business and how best to proceed in tackling the debt.
From this point on, the borrower’s options are very limited with a process under way that is out of their hands. If the receiver is satisfied the business is viable and can trade out of its difficulties, then a business plan will be put in place.
However, if the receiver takes the view that the business is unviable and unable to repay its debts, a sale of the business in its entire or a liquidation of assets will likely be the next step. Cases such as this are very rare in Ireland but that’s not to say it can’t happen.
For any borrower feeling pressure with repayments on a loan, the earlier you engage with the bank the better. Otherwise, a small issue can very quickly snowball into a difficult situation that no side wants.
Vulture funds
In recent years, venture capital funds, or vulture funds, have entered the Irish market after buying up the non-performing loan books of various lenders. For farmers with loans now carried by these funds, the potential to communicate can be more difficult.
The IFA has published five key principles for farmers when engaging with these funds.
No forced sale of farming assets which undermine the viability of the family farm and where the farmer has meaningfully engaged to find a workable solution.Full and final agreement must be reached between the borrower and loan owner prior to the disposal of any assets.Assets must be sold for their full market value and with proper advertising.No forced collection of debt that is not yet due.Where delays in arriving at a decision are due to the loan owner’s actions, there can be no interest or penalty accumulated on the outstanding debt in that time period.
While Ireland’s economy has recovered strongly from the financial crash in 2008, there are still major challenges facing many Irish households, including farm families, dealing with high levels of debt.
While Irish farmers tend to be very lowly borrowed in comparison with their EU counterparts, there is still significant debt on some farms that is a legacy from the Celtic Tiger years. During the boom years, land prices ballooned to unprecedented levels, which left many farmers with high debts.
There are many instances throughout the country where people may have bought land at inflated prices in the belief that the property held commercial or residential potential. This land may now have no commercial potential and is valued much lower than it was purchased, leaving the borrower in negative equity.
In more recent times, dairy has driven the increase in borrowing levels. Irish farmers have borrowed more as they expand existing dairy farms or converted to dairy for the first time after the end of milk quotas.
To expand or grow any business, borrowing money from a financial institution is almost always necessary and a natural part of any business plan. While the majority of borrowers successfully repay their loans, sometimes there are cases where farm businesses get into difficulty repaying borrowings. This is heightened in an industry where prices are volatile particularly in agriculture.
Whether you owe €1,000 or €1m, the one thing that a bank or lending institution wants to see from a customer under pressure with repaying a loan is communication and engagement
In recent years, there have been cases where farmers have run into difficulty with large borrowings. Coupled to this, some farmers have seen their stressed loans sold off to what are known as vulture funds. While the majority of farmers borrow money with the best intention to pay it back, there are situations that lead to the loan going bad. Situations like these are extremely stressful but it’s important to remember that there are always options.
Engage with your lender
Whether you owe €1,000 or €1m, the one thing that a bank or lending institution wants to see from a customer under pressure with repaying a loan is communication and engagement. The more you engage the better.
After all, the bank wants to get its money back so it’s in the best interests of the lender to work pro-actively with customers under pressure. For the borrower, the stress of worrying about missed repayments on loans can be crushing. A constructive conversation about the situation with the bank manager can take a huge weight off a person’s shoulders and help show the road out of the problem.
Conversely, when a borrower does not engage with the bank it throws up red flags for the lending institution while also placing huge stress on the person who has borrowed the money.
Deteriorate
If engagement between the borrower and the bank deteriorates, then a situation that was very manageable can quickly become much more fraught. If a bank finds that a loan made to a customer is not performing or that a customer is not engaging with the bank, then the loan may be transferred to a division of the bank that specialises in handling distressed loans.
The sole purpose of this arm of the bank is to recover loans that the bank has serious concerns about. Again, engagement is the best course of action to try to work out what repayment capacity exists in a business and form a plan to work a way out of the situation.
However, it’s important to note that engagement must be followed with some actions on the part of the borrower. The last thing a lender will want to see at this point is a customer agreeing to take a number of steps to address the situation only to find in six months’ time that nothing has been done.
Receivership
If no progress is made above, the last resort for the bank may be to appoint a receiver to take possession of the farm or business and assess the viability of the business and how best to proceed in tackling the debt.
From this point on, the borrower’s options are very limited with a process under way that is out of their hands. If the receiver is satisfied the business is viable and can trade out of its difficulties, then a business plan will be put in place.
However, if the receiver takes the view that the business is unviable and unable to repay its debts, a sale of the business in its entire or a liquidation of assets will likely be the next step. Cases such as this are very rare in Ireland but that’s not to say it can’t happen.
For any borrower feeling pressure with repayments on a loan, the earlier you engage with the bank the better. Otherwise, a small issue can very quickly snowball into a difficult situation that no side wants.
Vulture funds
In recent years, venture capital funds, or vulture funds, have entered the Irish market after buying up the non-performing loan books of various lenders. For farmers with loans now carried by these funds, the potential to communicate can be more difficult.
The IFA has published five key principles for farmers when engaging with these funds.
No forced sale of farming assets which undermine the viability of the family farm and where the farmer has meaningfully engaged to find a workable solution.Full and final agreement must be reached between the borrower and loan owner prior to the disposal of any assets.Assets must be sold for their full market value and with proper advertising.No forced collection of debt that is not yet due.Where delays in arriving at a decision are due to the loan owner’s actions, there can be no interest or penalty accumulated on the outstanding debt in that time period. 
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