The decision to seek funding or investment for your farm requires a significant amount of planning and detailed thought on what and how you are going to finance your farm. And if you are seeking partners within your business, you would also need to consider the amount of equity or shares you are willing to giveaway to the potential investors/ business partners.
It’s important to note that there will be a list of documents (see below) required to submit to financiers and financial institutions that will determine the outcome of your funding application.
Finance requirement list:
- Financial Statements (most recent and updated)
- Cashflow Forecast
- Personal Assets and Liabilities Statement
- Company Registration documents
- Letters of Intent from Customers (off-take agreements)
- Business Plan
- Proof of Land Ownership (Title Deed) or Farm Lease Agreement
PS: The above is a general list however, this may differ with various organisations.
Please take note of the following regarding the above:
1. The financials must include the accounting firm’s name, address, contact details, notes and have to be signed off by the accountant and yourself (farmer/business owner). If the above is not in place, most Credit Managers ie: from banks, will not accept your financial statements.
2. The cash flow statements need to show your income cycle and monthly expenses (indirect expenses i.e: fuel, electricity) and input costs (direct expenses i.e: fertilisers, seeds) or cost of sales. In the income tab, you would need to add your sales in the month/s that you expect to sell your product, for example.
Once again, depending on the company you are approaching for financing, they would require cashflow forecasts for either three (3) or five (5) years.
The cash flow statements will give the financier an idea on what turnover and profits they can expect from the business in the next coming years.
3. The personal assets and liabilities statements provide an overview of which assets you as the business owner have in your personal capacity and who your creditors are. It’s important to also have a good personal credit record, as financial institutions also conduct background checks on the owner/s of the business. If the farmland/property is owned by you (the individual) and you would like to add this asset as security in securing your loan when approaching banks (for example), the banks will use that security by taking a covering bond over it and will only allocate 50% of the agricultural property’s value as security.
Example: If your farms’ value is worth R1 000 000 (one million rands), the security reliance will be 50% of that = R500 000 (five hundred thousand rands).
Normally, financiers would place a high degree of reliance on the past trading history of the business and strength of the financial statements/balance sheet for the funding being applied for. Even though projections may have been supplied, they still have to be proven and tested.
If your past trading history shows a loss in your income statement, you would need to provide valid reasons why this occurred and show how you plan on mitigating these losses in the future and the financier will make a decision at their discretion.
Remember, that applying for funding does not automatically guarantee a successful application, however, if and when you are presented with the opportunity, ensure that your documents are up to date, as compliance and the inability to produce accurate financial business records is one of the primary reasons why farmers fail to raise funding.