THERE is little to choose between finance sources at present – they are so competitive, says Mike Greetham, head of professional services at consultant Andersons.
His tips for choosing and managing loans include:
• Match funding to economic life, not real life of investment – that way you wont end up repaying when the profit generated by the asset is not sufficient to justify it.
• Dont tie yourself into an over-ambitious repayment plan – you only end up substituting loan capital with overdraft.
• If leasing is discounted by the manufacturer, take maximum advantage by spreading it over the useful life of the investment.
• If you are not comfortable with the repayment plan, should you be investing in the first place – are you being flattered into a purchase you are better off without? Many farmers are currently looking to fund only a portion of a new investment with a loan, but with the same administration cost to the lender, the pressure is there to sell a larger loan to make the deal worthwhile.
• Beware of the small print – can repayments be made on the due day and what is the penalty for failure?
• Provide the lender with as much proof as possible of your ability to repay, through budgets, accounts etc. The reward will almost certainly be a lower interest rate if there is minimal risk for the lender.
• If it is available, consider offering security to minimise risk and bring down cost, but dont give it unnecessarily – it might be used to better effect elsewhere.
• Dont forget insurance for new investment, whether its machinery, buildings, fixed equipment or work in progress – loss by fire, theft and vandalism can render a good deal disastrous.