The market for finance in horticulture has for the past 12 months afforded growers the opportunity to invest in their businesses at historically low rates. However, to access competitively priced finance requires the correct approach to the right lender, yet it remains a common failing that many lenders fail to fully comprehend the requirements of the grower.
The need for reinvestment within the modern glasshouse environment is inexorable as businesses chase efficiency through modernisation, labour saving devices and energy saving. Improvements come at a price and generally require capital outlay before the returns can be recouped over future years trading.
Whether the business is looking for a new glasshouse, modernising and updating existing climate controls, irrigation systems, a packhouse or even a new site, the ability to access finance will therefore have a very marked impact on the ability of any grower to improve profitability.
Understanding where to invest capital in a business is a skill honed by growers from years of experience and day-to day management of their glasshouses. Dealing with the providers of the finance to facilitate the investment is something with which most growers are much less familiar or comfortable.
Lending money is a business and, contrary to popular belief, banks want to lend money. After all how else do they remain in business? They are naturally cautious and wish to ensure that the capital they lend and the interest on that money is recouped. Banks will always want as much security as they can get, but of much greater significance is the ability of the borrower to service the lending. All loans involve some level of risk. A lender needs to determine how much risk they are willing to take to give a loan.
The business plan, financial projections, or other documentation you provide helps the lender evaluate the risk. No one expects you to have a Master’s degree in finance, but they will expect you to have a sufficient understanding of your business to provide them with the information they need.
Profitability: provide profit and loss accounts for the last three years. Be prepared to explain the trends in turnover, costs, valuation fluctuations, any unusual transactions, drawings, capital introduced and cash generated. What are the cashflow projections? If it is a new business, what is the projected profit? Can the business afford the debt repayments and has it accounted for unexpected expenses such as broken equipment or a crop loss?
Having done the projections and compared them to historic performance the business will need to demonstrate that the loan is serviceable. Responsible lenders will want to know you can afford the debt at historic rates.
Equity: lenders like to see you invest your own cash as well. Where is that contribution coming from and can you evidence it? What other external finance or income do you have available?
Character: your personal credit worthiness and character can count for a lot in reassuring a lender that the loan is a safe risk. For example does your credit report show that you have made other debt payments on time?
Business history: this might include details of how long the business has been operating; a description of the premises; equipment and labour; terms of current supply contracts and current business strategy. Presenting your business plan is an opportunity to tell your story and explain how you will run and grow the business as well as considerations for succession planning or an exit strategy.
Security: if the business fails what collateral is available to repay the loan? A specialist broker will work with a lender who understands that in farming this collateral might be less traditional and include equipment, glasshouses, etc.
Proof of past financial performance is hugely significant but plausible projections are also important lending criteria today and well prepared financial projections often prove the key to securing finance.
The demonstration of due diligence in the selection of suppliers for all inputs to the growing process (including any capital investments) and secure contracts with customers for the produce will make significant strides in achieving the required borrowing.
There are also occasions within the life of a business when a move to new premises provides the opportunity to release capital value from an old site and allow that move into new purpose built state of the art premises.
Paul Pickford of Woolley & Wallis Finance gave an example when such an opportunity presented itself to Pinetops Nursery near Lymington. In 2014, their existing site offered no room for expansion and was surrounded by residential property, making it an obvious target for property development. When planning permission was eventually granted on their old site at Ramley Road, the business wanted to take the opportunity to develop on the site of the old Efford Experimental Horticulture Station, Lymington whilst also maintaining production at the old site to prevent any overseas movement into the pot lilies market.
To develop the new site whilst maintaining production at the existing one before handing over to developers was going to require significant short term capital. Rory Paton, director of Pinetops Nurseries engaged speciality broker Woolley & Wallis Finance to get the best deal available. He said, “Sourcing finance is something I might do once or twice during my business career, whereas a finance broker does this day-to-day and they are able to push for the most competitive deal available in the market”.
Woolley & Wallis Finance put together a lending proposal to cover both the short-term requirements and longer term commitments of Pinetops Nurseries, and this was offered to a number of traditional lenders. The proposal was picked up by HSBC and careful negotiation resulted in a deal that met the businesses requirements and provided the bank with the opportunity to build its relationship.
Paul explained, “Not all funding requirements are this complex; but taking the correct information to lenders showing that the business has a track record of performance, coupled with forward projections to show that the finance can be serviced, not only increases the chance of securing the funding but when combined with the expert knowledge of a finance broker with knowledge of the sector, can significantly reduce the cost of the funding.
When it comes to finance, a certain level of specialist knowledge is vital for developing a robust plan and delivering a positive outcome. The bottom line is to work with a specialist rural finance brokerage that has access to a panel of good lenders that specialise in grower financing. You do not need to be an expert on how to structure a loan, what type of collateral to use, or how to structure the payments. A specialist broker will be able to guide you through the process every step of the way and propose a solution to fit your needs.
The Commercial Greenhouse Grower has been the horticultural market’s leading magazine for over 20 years.
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Contact: John Downey