Investment continues at record rate despite downturn

AMC is on track to approve a record amount of lending in 2015, with the total amount of gross lending likely to be up by as much as 20% on 2014. AMC’s senior sales and agriculture manager Simon Eales says demand for borrowing has remained strong in the arable, dairy, beef, sheep and poultry sectors despite poor ex-farm prices and volatile commodity prices, with loans split equally between land purchases, capital investment projects and restructuring existing bank finances.

“Customers have used long-term low interest rate loans to invest in a number of different ways, such as generating new income streams, reducing production costs and – in some instances – becoming vertically integrated to maximise their profitability,” he says.

“And once again, loans for land purchase, working capital and restructuring shorter term debt over a longer period have also formed a prominent part of lending applications, as has support of diversified farm enterprises and landed estates.”

Mr Eales says this busy lending period coincides with continued low interest rates – although for the past four years AMC has predicted, in parallel with the Governor of the Bank of England, that interest rates would begin to rise within the following 12 months.

“So far this prediction has proven to be wrong. In fact, economists are once again predicting that any significant rise in base interest rates is still as far as 12 months away, potentially with little movement until the beginning of 2017 at the earliest.”

He adds that at a time when the income from many farming businesses is not covering their costs of production, they should consider how they structure their farm’s borrowings.

“Businesses should reassess where investment in infrastructure could result in reduced costs of production, or how investing to add value to the farm’s outputs could improve profitability.

“But for businesses where short-term, high interest rate HP loans and expensive overdraft facilities are constraining cash flow, the best course of action would be to review and restructure the farm’s existing debts over a more manageable term,” explains Mr Eales.

“Finally, whatever your farm’s status; with interest rates still at low levels, you could consider fixing a proportion of your debt in order to hedge future interest rate rises out of your business. As ever though, it’s important to take professional financial advice from your accountant or independent financial adviser before committing to a binding loan agreement.”

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