Forward projections and up-to-date accounts vital to financial agility of businesses

Forward projections and an up-to-date set of financial accounts are critical for farming businesses seeking to expand or increase their overdraft facility.

Brown&Co agricultural business consultant Kath Whitrow says having these in place allows a business to be nimble if an expansion opportunity presents itself, or when it needs a short-term increase in borrowings.

As a former banker, with a career in the sector spanning over 38 years, she is well placed to offer important advice on what lenders expect.

In the second in a series of Brown&Co podcasts, with agricultural business consultant, James Brown, Kath says financial information is key.

“Having up-to-date financial accounts from your last year-end is critical but if you are looking to expand or increase your facilities it is more likely these days that banks will want some form of forward projection looking at how the business is going to perform in the next two to three years,’’ she advises.

“Banks have a responsibility as lenders to make sure that they don’t lend clients into trouble, that they can afford any new debt they are taking on.

“The only way to do that is to look back at historic financial information and to look forward at what the business is capable of delivering.’’

Brown&Co supports businesses with financial analysis, to enable them to determine capability for borrowing.

This could take the form of monitoring performance but also looking at projections for taking on new debt for expansion opportunities or the changing of business structures.

When a business approaches a lender to borrow money, that lender will first and foremost consider serviceability, if the business can afford to service the debt, repay the money it is requesting.

The lender looks at historic accounts and forward projections, says Kath, but predominately it will be the cash the business produces, not just the net profit.

“We call that the source and application of funds – where is the cash coming from, and where is it going to,’’ she explains.

“That, combined with a cashflow forecast, tells you month-on-month how the business is looking, how it can adhere to its facilities, those are the real elements that the banks will be looking for.’’

When calculating the serviceability of loans, banks include hire purchase (HP) agreements and family loans in their calculations.

“It will be looking at all the debt requirements of the business, no matter who the lender is, so if you have HP on a quad or tractor that will be taken into account,’’ says Kath.

Bank interest rates are set at the Bank of England base rate plus a margin.

For banks, this is regarded as a “risk premium’’ and each business potentially incurs a different rate.

“If you are paying 2% over base then in today’s (May 2025) market you would be paying 6.25%,’’ says Kath.

Extensions to overdrafts and new loans have historically been secured very quickly but timeframes are now longer.

This comes amid more responsibility on banks to undertake due diligence, whether for a short-term overdraft increase or for a long-term lending requirement for the purchase of a farm or machinery.

Kath says that instead of days, as might historically have been the case, it is now likely to take weeks, potentially longer.

“The key thing is to be ready for any opportunity, never knowing when something might come up and you might need a short term increase in your facilities,’’ she recommends.

“Have your accounts up-to-date, and if you think that an opportunity might present itself in the future then look at projecting your business forward so you can provide the bank with the information quickly to help them to make their decisions quickly.’’

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