Banker tells Kintyre farmers good communication is key

The steps farmers can take to help develop a beneficial, two-way relationship with their bank manager were highlighted by Sandy Hay, Head of Bank of Scotland’s Agricultural department in Scotland, when he spoke at this month’s Kintyre monitor farm meeting.

 Mr Hay, along with chartered accountant Peter Innes, a Director of Johnston Carmichael, emphasised the importance of communication to building a good working relationship with your bank manager.

 Monitor farmer Duncan Macalister, who owns the 1,730 acre Glenbarr Farms on the Kintyre Peninsula’s west coast, north of Campbeltown, gave the two speakers a tour of his farm, one of the network of Quality Meat Scotland (QMS) monitor farms throughout Scotland.

“Every farming business is different,” Mr Hay told the community group. “Within agriculture there’s a diverse range of enterprises, and the personal approach of the farmer, along with other key members of the family or individuals within the business, also vary from farm to farm.”

Mr Hay added: “Take the time to explain the details of your business, along with your hopes and plans for the medium and long term, plus what you hope your business will achieve for you and your family.”

Planning for the future of the farmer’s family had been at the heart of a discussion on succession planning, led by chartered accountant Peter Innes at a previous Kintyre monitor farm meeting.

Mr Hay reinforced Mr Innes’s advice to ensure that all involved in the business, including the younger generation, are included in business discussions, particularly the discussions which will influence the future of the following generations.

“By informing your bank manager of where you are now, and where you hope to be in the future, he can advise you on the best financial options to help you achieve your goals,” added Mr Hay.

“This type of information is also valuable if you are seeking borrowing, for your bank manager will need to fully understand your business to be able to provide the necessary information to secure the required borrowing from the lender. This has become fundamental since the banking turmoil of 2008, with banks now needing to constantly provide evidence that they are ‘responsible lenders’.”

He added: “It’s also helpful to know what drives you, and especially what keeps you awake at night!”

To illustrate his point Mr Hay used the often high capital cost of a renewable energy project, particularly topical in Kintyre. He explained that some farmers are keen to borrow seven figure sums to erect and own their wind turbines or hydro schemes. While others, wary of such a financial commitment, prefer to lease the relevant area to a power generation company. His advice was “don’t put yourselves in a position you’re not comfortable with.”

Although a farmer may have substantial asset value in relation to the amount of money he seeks to borrow, Mr Hay explained that a lender’s decision is more influenced by the borrower’s ability to service and repay the loan.

Before approaching the bank manager for a loan, Mr Hay strongly recommended a detailed business plan is pulled together, with income forecasts and ideally with figures from the three previous years. “You may involve your accountant in such a project, and if you do, ensure he fully understands your business. Also make sure you fully understand all the figures yourself, for you will need to be able to explain them to the bank manager.”

Farming is notoriously vulnerable to uncontrollable factors. For British farmers the last two decades have included BSE, Foot and Mouth Disease, record rainfall and in Kintyre, the horrendous spring 2013 storms which claimed hundreds of livestock lives. In 1997 and 98, monitor farmer Duncan Macalister had lost a total of 60 calves to Bovine Viral Diarrhoea (BVD).

With situations like this in mind, Mr Hay emphasised the importance of “stress testing” forecasted income figures. “Part of the lending assessment will be to sensitise some key factors in the forecasts, such as price or yield. This will show the effect on the business’s ability to service and repay debt under some challenging conditions that my happen.

“Also a banker may wish to know what contingency is in place for ‘what ifs’ or the unplanned events, for instance the farmer suffering a serious accident or worse. There should be a ‘Plan B’ to ensure the debt can be repaid.”

Mr Hay lifted spirits when he told the community group: “Within the banking world, farmers are regarded as highly trustworthy, having a track record of keeping their word and generally the sector is strongly supported by asset values. Because of this, agriculture enjoys considerably more favourable interest rates than many other business sectors.”

For general information on monitor farms, plus detailed reports of meetings please visit www.qmscotland.co.uk/monitorfarms

Pic caption: Pictured centre is Sandy Hay, Head of Bank of Scotland’s Agricultural department in Scotland, with monitor farmer Duncan Macalister, left, and chartered accountant Peter Innes, a Director of Johnston Carmichael.