Budget honesty and realism are key to good debt management

It has never been more important for farmers to fully understand cash requirements than it is today says the Agricultural Mortgage Corporation’s Andrew Connah.

“With many markets remaining volatile and an unwelcome tax bill due soon, now is an important time for farming businesses to ensure they have enough working capital to see them through the short to medium term,” he said, adding that “budget honesty” and being “realistic with projections and assumptions”, were key starting points for those needing to restructure.”

Warning that those nearing their overdraft limit, or carrying a poor set of accounts, may find it a challenge to secure the best terms, he urged producers to seek independent advice when approaching a restructuring meeting.

“Farming has got used to higher returns and low rates, so people are tending to tie themselves into shorter-term paybacks,” he said. “This is fine as long as things are good, but gives you no wriggle room if you hit a tricky patch.

“A golden rule of thumb is to borrow over as long as possible to minimise the annual commitment, but repay as quickly as you can to minimise the total interest re-paid. That’s why flexibility within loan agreements is so important, making sure they meet your needs and help the business over the longer term.”

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