Steven Withers from Lloyd’s Bank discusses securing finance for your diversification project.
We partnered up with Steven Withers from Lloyds Bank to discuss what it takes to create a comprehensive business plan and what information banks may need, to help you secure finance for your farm diversification projects.
Read on to find out more…
The UK agricultural industry is constantly evolving, arguably now faster than ever. New market trends and volatility are emerging regularly, with ongoing policy changes being introduced throughout the Agricultural Transition. Farm diversification is often highlighted as one of the effective ways that farmers can adapt to these changes, increase business resilience and maintain income.
However, when considering any new business or enterprise, be it glamping, commercial rental or farm retail based for example, it is advisable to create a business plan to ensure it is a worthwhile investment.
Why do I need a business plan?
Before we get into exactly what banks and investors are looking for in a business plan, a summary of why business plans are important can be seen below:
Planning and strategy: A business plan outlines management and operational requirements. This will guide you towards informed decisions in allocating resources and managing risks
Funding: A comprehensive business plan is typically required when seeking external investment or funding from banks, investors and stakeholders alike.
Risk management: Through conducting thorough business planning, opportunities, risks and challenges can be determined early on, preventing costly mistakes in the future. It’s always better to make a mistake on paper than in reality!
Resource allocation: Business plans enable business owners to understand resource requirements and how to allocate them effectively from start-up to operation.
Investment appraisal: Ultimately, a business plan should provide you with enough information to decide whether the venture is worth investing in. Through this, measurable KPI’s, objectives and goals should be clear, helping you determine how the business must perform to be successful.
What do banks typically look for in a business plan?
If you are looking to attain finance from the bank to help fund your new enterprise, you’ll certainly need a business plan and the right supporting information! Steven Withers from Lloyds Bank has provided an insight into what banks will likely want to see before lending capital.
Firstly, Steven quite rightly highlighted that in the realms of agriculture and farming, no two cases are the same! Therefore, exact details and requirements will significantly differ from farm to farm and project to project. In the context of Commercial Property Investment (CPI), which includes the erection of new buildings and conversions for both agricultural and non-agricultural use, most on-farm development projects are supported, subject to the business case.
Business Plan Must-Haves
Steven says, regardless of the project or investment, the following are an absolute must-have for a business plan:
- Business overview and detail of project
- Feasibility of what is trying to be achieved
- Benefit to the business
- Cost contingency and cash availability
- Formal and valid quotations, including detailed costings of the project
- Impact on working capital
In all circumstances for releasing funds, the bank will require:
- Release of funding against invoices
- Evidence of planning permission (if required)
A previous guide we’ve written on how to construct a business plan can be found here.
Depending on the scale and type of development, banks may require to see:
- Market research
- Cash flow forecasts (including projections for both revised capital expenditure and income)
- Input from external professionals where required
Steven went on to mention that for particularly complex and large projects, banks may request:
- A construction schedule (including total length of project)
- Independent monitoring & oversight by the required professionals
- Potential pre and post valuation requirements
Furthermore, Steven stated that in any circumstance, the overall points that a bank will consider when approached for finance are:
- Capital expenditure assessment
- Client contribution (private financing – cash)
- Security available (tangible assets for security against borrowing)
- Full affordability assessment, including having in possession the most up to date 3 years’ worth of financial accounts
Conclusion
Ultimately, a successful farm diversification project requires careful planning, meticulous research, and a solid understanding of the financial and operational requirements. By taking the time to create a comprehensive business plan and working closely with your bank, you can increase the chances of securing financing and successfully growing your new venture.
Lastly, when reviewing your business plan, position yourself as an investor. Would you invest in your business…?
At Dudley Peverill, we work hard to deliver farm diversification on behalf of our clients, often encountering matters arising from the above. Contact us today to discuss diversifying your farm or rural business, or how to utilise collaboration and joint ventures on your farm or estate today.
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