From an interest rate perspective there would not seem to have been a better time to consider borrowing to fund investment, putting aside the other uncertainty we have at the moment. However, a decision to borrow has to be made based on individual business circumstances and an assessment of the risks and benefits.
The key consideration for lenders in supporting a proposal, is the ability of the borrower to service the debt. ‘Affordability’ has been a word that has become familiar to many businesses over recent years, and lenders are still very focused on this. Lenders, despite the historically low interest rates, will still ‘stress test’ a proposal based on a higher rate of interest than will actually be charged.
Property security for debt has historically not been an issue with agricultural lending traditionally being at lower loan to values (the percentage of the property value that the lender will loan). With the past few years of increasing agricultural property values there have been few problems, but the uncertainty over where agricultural land and property prices might go, is something worth considering. There’s little evidence yet of a Brexit impact on the rural property market, with few transactions completed since 24th June. Caution from lenders at this time would not be unexpected, therefore the issue of security might need more thought than had previously been the case.
Now even more than ever, lenders need to be convinced to lend. Businesses need to have well thought through and planned proposals, with strong supporting evidence and documentation. Where this is the case, it is possible that agriculture could see borrowing rates as low as they have been in living memory.
Tim Parsons is director (North West) of H&H Land and Property Limited.