Cashflow issues expected to bite in autumn, bank warns

The banking sector is warning that cashflow pressure will become more serious later in the year as high on-farm costs bite further.

Defra is having monthly talks with agricultural banks on the impact of cost pressures. This is a more frequent programme than in the past, said Roddy McLean, director of agriculture at NatWest.

Speaking about farmers’ increasing borrowing requirements, he said: “It’s a steady trickle of requests at the moment that we are getting [for additional funding], but we expect that it has the potential to ramp up as we move through the summer and into the autumn period.”

Farmers are being urged to revise cashflow plans more frequently as there is a risk of early BPS payments being used to cover high input costs and then not being available for other costs further down the line.

For example, many businesses plan payments such as hire purchase and loan repayments to coincide with the arrival of BPS in December and January.

Lower interest rates on small business loans

NatWest is introducing measures to support the agricultural sector dealing with high inflation and cashflow issues.

The bank has announced a reduction in interest rates of between 0.5% and 1.35% for small business loans between £10,000 and £40,000.

Ian Burrow, head of agriculture at NatWest, said: “For those smaller loans below £40,000, the annual percentage rate (APR) will be about 8.9%-9.65% after the reduction.”

The exact rate reduction will vary depending on the terms of the agreement and amount borrowed.

NatWest holds a 28% UK market share in agricultural banking and works with about 41,000 farming enterprises.

Extending overdrafts

Mr Burrow said it would offer increased overdraft limits to customers dealing with a short-term issue that they would emerge from quickly, as this is the cheapest way to borrow short term.

“However, if the customer feels it is going to be a longer-term issue for their particular set of circumstances, then we would work with that customer to look at alternatives such as a smaller overdraft combined with a capital repayment holiday or a loan,” he said.

Capital repayment holidays are being offered where customers pay only the interest on a loan for a set period, typically between six and 12 months. However, this will vary between businesses.

Payments during the holiday would be calculated on an interest-only basis, with repayment terms either extended or monthly repayments subsequently adjusted upwards to cover this.

Green loans

NatWest has launched a green loan, for investment in cleaner enterprises and practices without having to pay arrangement fees.

A wide range of activities and purchases qualify for a green loan, including biodiversity and natural capital projects, forestry creation, water management, regenerative practices, renewable energy, and low-carbon vehicles such as electric tractors.