Loans OK for SFP delay – but interest bill high

Farmers facing delays to the single farm payment will be able to secure financing to cover the shortfall at the same rates as their regular borrowing, bankers have said.

But the extra amount needed is expected to cost the industry £20m-£25m in interest charges.

Most banks are offering either a bridging loan or overdraft extension to maintain cash flow in the period between the old, discontinued support payments and the arrival of new SFP cheques. Although far from certain, the SFP is likely to reach English farmers in March 2006 and other parts of the UK in December 2005.

NatWest has announced a specific single payment scheme loan to fill the gap, aimed at new and existing customers. The interest rate would be the same as it was for regular borrowing, said Ian Kenny, head of agriculture at the bank. “The industry realises this year things are going to be tighter, and they need to talk to their bank manager now and start thinking how to restructure their debt.”

Industry figures show extra borrowing would cost 800-900 for a 280ha (700-acre) combinable crops farm over four months, he said. Figures are based on borrowing £37,000 at 2.5% above the base rate.

Euryn Jones, Barclay’s agricultural policy director, said: “A late cheque does not turn a good business into a bad one. Farmers need to know they won”t have to resort to selling crops and livestock early, or having to seek additional credit from suppliers.”

He calculated that a typical 400ha (1000-acre) arable farm would have to borrow about £80,000 over a four-month period, costing £1500-£2000 in interest payments. “The choice of overdraft or loan would be very much down to the farmer,” he added. “An overdraft provides flexibility, but the benefit of a loan is that it separates out the borrowing to tide them over, adding a bit of structure.”

Other banks – including HSBC, Lloyds TSB and Royal Bank of Scotland – said their existing lending facilities could deal with the shortfall in payments.

Tim Porter, agriculture director at Lloyds TSB/AMC said: “Overdraft extensions are business as usual, and we already offer a flexible loan, which is halfway between a current account and a mortgage.”

Steve Ellwood, head of agriculture at HSBC, said bridging loans and overdraft extensions were available at the same rates as existing facilities. “For farmers this is a significant hiccup in cash flows, and we will look at that as sympathetically as we can.”

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