Base interest rates look set to double

He commented:“Base interest rates have averaged 0.5% for the past 14 years with recent weeks seeing that figure climb steadily to the current figure of around 2.25%

“These increases will have a direct impact on the amount of money required by local farming businesses to manage their bank debt.

“The fact is that most loans within the agri sector over recent years have been taken out on the back of variable interest rate agreements.”

But despite the seismic events that have taken place within the UK’s financial sectors over recent days, McKervey remains very upbeat regarding local farmers’ ability to meet their loan repayments.

He explained:“All of the loans that we agree with farming customers are stress tested up to an interest rate fluctuation of plus 2% beyond the agreed figure.

“So we have a very good idea of clients’ ability to re-pay outstanding monies. Moreover, despite the recent interest rate hikes, the financial standing of most farming businesses in Northern Ireland remains strong.”

According to the Ulster Bank representative farmers now find themselves confronting four major cost-related challenges. These are the ‘Four Fs’: feed, fertiliser, fuel and finance.

“Of these, finance remains the factor that will have the smallest impact on farm cash flows,” he said.

So what happens if farming businesses run into difficulties when it comes to making their monthly debt repayments?

“It’s far from the end of the world,” stressed McKervey.

“The options of going interest-only or extending the total repayment period are available.”

However, the Ulster Bank representative has specific advice for farmers when it comes to managing their overdrafts.

He said:“An overdraft should reflect the ebb and flow of the monies coming in and out of a farm business.

“In cases where the overdraft levels remain stubbornly stuck close to their limits, a restructure on to a loan should be considered.”

McKervey continued:“Nor should an overdraft be used to cover one-off, large payments such as that incurred when buying fertiliser at the present time.

“The best way to manage this financial outlay is to agree a bespoke loan with the bank.

“This can be paid back over an agreed period of time. One option might be to go interest only for an agreed number of months and to repay the capital using single farm payment monies or revenues generated from cattle sales.”

The Ulster Bank representative confirmed that most farm account balances are relatively strong at the present time, adding: “But this could change over the coming months. The winter ahead will be very costly for many farming families: expensive feed, fertiliser, energy and tax bills will have to be paid.

“The key starting point for farmers planning ahead is to work through a cash flow budget that will cover the next six months.

“In many cases there is no requirement to have an accountant prepare the figures: a general idea of the projected monies coming in and out of the business is all that’s required.”

Cormac McKervey concluded: “Armed with this information, farmers can then sit down with their bank and work through a suitable finance plan.”