Commercial banks and agricultural firms in South Africa have launched financing programs geared at helping new farmers break into the market. Despite this, many farmers are still unable to obtain loans, even with the help of government programs.
Partly, this is due to their failure to submit an application with all of the required information.
A business plan is required as part of the financing application procedure for farmers. Based on this, the lender will decide whether or not to approve the loan.
In order to get a credit application approved, you’ll need a solid business plan. However, if you’re a new farmer looking for funding, putting up a business plan might be a daunting undertaking.
Grounds for application rejection
■ Little farming knowledge
■ Insufficient planning in terms of finances. Farmers often overestimate their sources of revenue and underestimated their expenditures in order to maximize their profits.
■ incapability to pay back debt
■ The lack of farmland and equipment, which means inadequate collateral.
What makes a good business proposal?
1. An individual or organization’s background
Background information about the person or organization applying for funding should be included in your application. Experience in farming and management are discussed in detail here.
The evaluator will be able to conduct an accurate risk assessment if the applicant has provided accurate and complete information. The applications of slightly elevated applicants are seldom approved. Success in applications is highly dependent on the amount of owner’s capital. The evaluator will be able to conduct an accurate risk assessment if the applicant has provided complete and accurate information. High-risk applicants rarely get their applications approved. Sufficient founder’s capital is also important for successful applications.
2. Management of a farm
Information about the farm’s management should be included in the business proposal, including previous employment and educational qualifications. Key employees in responsible for supervising day-to-day processes are referred to as ‘farm management,’ in this context. They’re in charge of overseeing the strategy’s execution and monitoring its progress.
The farm manager is in charge of making business decisions, so the farm’s success is heavily reliant on their abilities. The management team’s training and technical skills should be demonstrated.
If the farm managers lack the necessary skills, a training program should be put in place for them as soon as possible after their appointment.
The farm’s business plan outlines the applicant’s vision for the operation’s future direction. As a result, a document outlining this strategy is vital, as it will be incorporated into the operation’s financial forecast.
The farm plan should be easy to understand, practical, and simple to put into action. It should include information on the products the company plans to sell, demand projections, sales growth, and stock control availability, as well as how and where reserves will be obtained and investment infrastructure purchased.
As soon as the management team feels confident in the company’s operations and marketing processes, they should turn their attention to the initial product(s) and establish a current market position.
Growth strategies such as introducing new products, increasing market share, and procuring additional resources for expansion can be implemented once the business is stable.
4. The necessary tools and infrastructure
In order to have a strong application, you must be able to show that you have access to necessary infrastructure and farming resources. Access to grazing land, operational facilities, workers, and any other assets required for the company’s successful operation are included. A farmer’s land alone is not taken into account when applying for a loan; lenders look at the entire farm infrastructure and resource availability.
5. Forecasting and analyzing financial data
To be considered for funding, the applicant must show proof of the company’s financial health, including a cash flow forecast, financial ratio analysis, and a feasibility study. Last but not least, there should be a financial forecast reflecting the expected financial journey from farming activities, including the assumptions made to arrive at the forecast amounts. These hypotheses ought to be tenable.
Financial information is used by financiers to assess a company’s success, calculate the loan’s payback period, and assess the company’s financial position in comparison to those of other market participants. Rather than taking the financial forecast’s numbers at face value, analysts compare them to current market conditions to make sure the forecast’s amounts are reasonable and accurate.
Only a small number of financiers use standards as comparison points when evaluating loan applications, and most do so on a case-by-case basis. The debt-to-equity ratio and the minimum number of livestock are two of these criteria. The debt-to-equity ratio shows how much money the farm business owes in debt compared to how much money it has in equity (equity). When evaluating successful applications, a favorable debt-to-equity ratio is frequently taken into account. The current climate dictates that the ratio should not be higher than 50%.
6. Financing source
Is funding required for a short-term or long-term project, and for what purpose? A financier’s method of evaluating an application will depend on how you answer these questions.
It takes a lot of time and effort to gather the data needed for a business proposal. However, studies show that submitting a strong business plan along with the credit application increases your chances of being approved.