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03 Jun, 2021

Considerations for Switching Banks

Considering switching banks? Noreen Lacey shares her top tips to help you make the right move.

There can be various reasons to consider switching banks ranging from difficulty obtaining funding to generational transition in a farming business, staff changes that affect banking relationships or a bank exiting a particular market.

Margins

If you have a viable and profitable farm, refinancing may enable you to negotiate a reduction in fees and interest rates. However, it is essential to look at the overall cost and not just the headline lending rate as cheaper offers sometimes end up costing more when extras are included.

Current Accounts & Overdrafts

Switcher packs are available in banks and the transfer of direct debits and standing orders is part of the switching service. Care is needed, however, on issues such as tax, VAT and BPS payments. Information on switching can be found on the Citizens Information Website. If you want to open a new current account with overdraft facilities, you will need to specify the facility required, duration and purpose. Applications should include a cashflow forecast and budget with a sensitivity analysis showing the impact of input/output price changes and yield/output variations.

Security

Where secured loan facilities are required, the relevant land folios and deeds need to be in order and, ideally, free of judgements or burdens. Some banks cover a fixed amount of the legal fees associated with the cost of switching.

Loan Repayments

While agriculture still tends to be favoured by lenders, the ability to service and repay loans is a deciding factor for most banks. Farm accounts need to be up to date, with good historical performance figures, a clear business plan and a documented path for succession. The term and the structure of the proposed loan and the nature of the borrower (sole trader, limited company or partnership) are also important. The borrower type is especially relevant when loans originally borrowed as a sole trader are refinanced by a limited company.

Infrastructure and Support

Online banking facilities, branch network and staff are other factors to consider. Who will you be dealing with? What is the experience of other farmers with the bank? Have you any feedback from your discussion group? If your business handles cash, how does the bank manage the associated practicalities/costs?

Decision Time

Once you have initial meetings or discussions with several banks, it is up to them to come back to you with a proposal—if they are keen to win your business, there will be some flexibility and elements of negotiation. Take your time and keep in mind “service and quality will be remembered long after price is forgotten!”