Time to review rural business borrowing?

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News article

Time to review rural business borrowing?

December 2010

rural consultancy news

Farmers looking at using long term loans to fund investment are being advised to choose their lender carefully, acting sooner rather than later to avoid rising costs in the banking sector.

The advice comes as longer-term fixed interest rates are becoming more expensive despite The Bank of England’s bank rate, or base rate, remaining at a historically low rate of 0.5% for the last 21 months.

With continuing concerns over the economy and cuts in Government spending, experts do not forecast any significant increase in the Bank of England bank rate during 2011.

However this long term stability creates a false sense of security, with an increase in the cost of longer-term fixed rates likely.

London Interbank Offered Rate (LIBOR) is the interest rate at which banks borrow funds from other banks, using this to calculate what they can offer to borrowers.  Historically the Bank of England’s bank rate has followed the LIBOR , but this has been rising throughout 2010 and is predicted to keep rising.

The implications for borrowers is that the use a reviewable facility, such as an overdraft or loan, is likely to result in interest rate margin and renewal fees rising further as banks recoup the cost of funds. Major borrowing on an overdraft or ‘on demand’ loan should be reviewed and replaced by long-term facilities in order to protect against the rising costs of finance, preventing further fees.

Loans from lenders such as the AMC can help those in the rural community by offering a mixture of fixed and variable rates that are more beneficial to the borrower.

Holly Richardson of chartered surveyors Fisher German comments “Loans from the AMC can initially take advantage of low variable rates and as these increase, can be converted to a fixed interest for the rest of the loan.

“For those in the rural community looking at borrowing, I would strongly advise speaking to an AMC registered agent. They can help provide long term loans for 5-40 years, with long term interest and fixed rate loans for up to 40 years, 5 years flexibility facility as well as a secondary overdraft with fixed fees and margin for 5 years”.
 
For further information about AMC loans and their use, please contact Holly Richardson 01858 410200 or email holly.richardson@fishergerman.co.uk
 
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