Protect original bank loan deals, farmers urged
FARMERS with loans secured against their farms are being warned not to sign new agreements replacing the original ones.
To do so could limit their room for manoeuvre in times of financial difficulty, according to John Nicholson, a founder member of the Farmers Bank Action Group.
One tactic, he suggests, which farmers can use when such difficulties loom, is to create a tenancy so the rent effectively pays the interest and repays the debt over a much longer period than the original agreement specified. Many agreements between banks and farmers signed before Sept 1, 1995 do not prohibit such tenancies.
Such a tenancy makes it very much more difficult for a bank or the AMC to call in a loan at short notice, he says.
However, they would only hold as long as the rent met legal requirements and the restructured business was able to pay that rent. Such an arrangement would not stop the bank reaching an agreement, "giving a bit of help, doing a deal, or severing the relationship", suggests Mr Nicholson.
"But even that must be better than having the loan called in at short notice with no time to dispose of assets at their proper value."
Mr Nicholson is also campaigning for banks to deal direct with farmers facing severe financial problems, instead of "appointing" expensive firms of accountants who know nothing about farming to produce "reports" for the bank on behalf of the farmers.
An example brought to farmers weeklys attention this week is typical, he says. The farmer was asked by his bank to sign a pre-prepared letter (purporting to be written by him) to a leading firm of accountants.
It included the following: "In the event of a conflict between your duty of care to the (farm) business and the bank respectively, your primary duty will be to the bank. You will be under no obligation to disclose to us (the farmer) any information, which might prejudice the interests of the bank."
Yet by signing the letter, which he had no part in writing, the farmer authorises the bank to pay all fees and expenses without his prior approval.
Mr Nicholson says "This stinks. If banks want a report on a business surely the bank should pay for it, or better still deal direct with the farmer." *