£50,000 Cashflow Finance for a farmPublished on 28th November 2019 2019-11-28T12:00:00+00:00 - Last update on 29th November 2019 2019-11-29T18:06:47+00:00
Cashflow is a challenge for every business sector, but especially for farmers, whose income stream may come in only at harvest time - despite the need to take care of year-round costs.
The old-style overdraft provided a convenient solution for the cashflow needs of many small farmers, making it easy to dip into a cash reserve whenever it was required. Overdraft facilities were provided by a bank, and the facility would be agreed as part of your business banking arrangements. Its size would depend on the scale of your business, but with a sympathetic bank manager, it could be flexible enough to provide for most everyday cashflow challenges.
It worked very simply - it let users withdraw cash that they didn’t have in their accounts, to use for a few days, weeks or months until funds came in. The bank would only charge for the cash withdrawn and for the time it was used, which could make the overdraft a cost-effective solution. Businesses of all kinds used their overdraft as a feature of their financial planning, providing a buffer against cashflow slowdowns - from late paying customers, to take advantage of an opportunity, or to deal with an unexpected expense.
But when the credit crunch hit, many banks reduced or removed the overdrafts they extended to small businesses. The farming community was among those that felt the loss, suddenly finding that they had no way to access funds for the short-term.
Fortunately, as the Alternative Finance market has developed, there are now new solutions which can provide support for farmers and other businesses facing cashflow challenges.
A challenging industry
We were recently approached by a farmer with a large arable farm in Berkshire. His farm had been in his family for generations, and he was determined to keep in operation, despite the challenges he was facing.
“People outside the farming word seem to think that we farmers complain a lot. The fact is that there can be some big financial worries. Finding solutions is vital if you want to stay in business.”
There are several factors at work to cause problems for farmers. Profit margins can be tight on many farms. Supermarkets and other buyers tend to use their buying power to drive down the price that can be realised for most types of harvest, and there are always concerns about grants and other funding, and especially now that Brexit has removed many of the old subsidies that many farmers relied on.
But the biggest worry of all remains one of cashflow. Income only comes in at harvest time but the costs - for workers, diesel, pesticides and fertilizers - come in all year round. It means that a cashflow problem is almost inevitable for most farmers.
Farming is vital to the UK economy, but many farmers struggle to make a profit and, as a result, many lenders are reluctant to lend to the sector.
Those that do may offer loans at relatively high rates - reflecting the instability that can threaten many farmers' livelihoods.
In the case of our client, the problem was made worse by the fact that he already had considerable debt, with outstanding finance for buildings and equipment.
How Rangewell helped
We saw the solution was a Cashflow Loan - a flexible short-term loan designed to be repaid as soon as funds are available. We approached a lender who was sympathetic to the farming sector, and discussed our client's needs.
We found our client a lender offering a Secured Loan at £50,000 at 16% - the equivalent of 1.33% per month. This allowed him to deal with the operating costs of his farm, and pay it back as soon as he sold his crops in a few months time.
“16% sounds a lot - but the loan was for the short term, and would be paid off as soon as I brought the harvest in. I can draw money down for as long as a month. It is certainly better than using a credit card - the rates on that work out a lot more because you can’t pay back as flexibly.”
The funding Rangewell arranged:
£50,000 at 1.33 % per month
Monthly interest repayment £625
The process was simple and - because we were able to approach lenders who understand the sector - we were able to arrange it with the minimum of paperwork and delays. To find out more about cashflow support for your farm - or other business - take a look at what business finance solutions are available by contacting us today.
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