An agriculture finance expert and author, Mr. Isaac Agbola, has advised the farmers to always take some factors into consideration before applying for bank loans. Agbola, a former banker, said understanding of the costs, planning and budgeting should be prerequisites to applying for an agricultural production loan, as this not only makes it easier for banks to approve the loan but also ensures that the farmer achieves optimal profitability in any given production season. He explained that banks often took the seasonal needs of primary producers into consideration when designing agricultural production loans, which usually made them aware of how farmers seldom took advantage of the full range of production options available to them.
He further said that the reason for this appeared to be a lack of financial planning, which, in most cases, was caused by a lack of financial knowledge. ‘ The irony is that help is readily available. For instance, some banks have dedicated agricultural relationship managers and highly qualified agricultural economists in all provinces who can help with everything from budgeting to establishing the long-term viability of expansion projects.’ “However, it is important, for their long-term sustainability, that farmers develop a personal understanding of what makes their operations tick. This will give the banks confidence to make funds available to them. “For example, most farmers have more than one product, each with its own production cycle and unique requirements. One of the criteria for qualifying for a production loan, which covers the inputs for a production cycle, is to pinpoint when those inputs will be needed. This enables the banks to release the funds at the right time,” said Agbola.
Agbola explained further that to ensure the release of funds at the right time across multiple produce and their individual production cycles, a farmer really needed to think ahead – or risk not being able to plant a crop because he did not apply for a production loan in time. He pointed out that information about the costs involved in producing for selected market was also crucial to the bank in deciding whether or not the farmer’s margins were sufficient to support the repayment of a loan. According to him, insight into costs and prices enables a farmer to mitigate both production and price risks by means of insurance that includes adverse weather and hedging price shifts during a season. The finance expert advised farmers not to limit themselves to planning only for the next season, urging them to use their current plans as the foundation of their future growth, adding that they should ensure their agricultural production loans work continuously in their favour.