Small dairy farms can be profitable and interesting for banks and banking institutions to provide them with loans for development. This was on the air agro.fm told Petro Bogachevich, an expert on financing the agricultural sector of IFC.
According to him, a recent IFC study of dairy cattle breeding, pig production, beef production, poultry eggs and meat has shown that individual small farms can be profitable. But, considering farms to provide them with loans, banks look at the number of hectares, while one should look at the profitability of the economy and the ability to service debt.
“In our study, we saw that there is potential for financing such farms, and for conducting their profitable activity,” Bogachevich said.
According to him, an interesting point is that cattle breeders, as a rule, have a mortgage: cowsheds, equipment, livestock itself, which can also be a pledge for the bank. All this needs to be shown and explained to the bank, which understands little about dairy cattle breeding, and, thereby, helps it to make a decision.
“There are several sales directions for the dairy farm. She has incomes not only from the sale of milk, but also from bulls, or from the sale of surplus grain and oilseeds if they are grown on a farm. Such an object, in which diversified production, is more interesting for the bank in terms of reducing risks. It is necessary to show that the farm has a current activity, which brings a living penny every day, “advises the expert.
The producer who wants to take out a loan for development needs to show the bank of knowledge of its own production and the strategy in which direction the enterprise will move on: knowing its costs, where the profit comes from, what it is, showing the bank the profitability in percent, the dynamics of profit for the last three years. It can also be shown with which enterprises the farm cooperates, with whom there are contracts, where the products are delivered. It is necessary to understand what information is interesting to the bank and, based on this, to do the preparatory work.
“An entrepreneur must show and explain why he needs a loan. As the bank expects that this will be a development loan, that the farmer will take it, will serve and remain profitable, “Bogachevich explains.
A huge plus will be the farmer’s proposed business plan or development strategy for the next few years, and ways to implement this plan or strategy. A very important point of this strategy is that the farmer counts not only on credit funds but also independently took part in financing his farm. For example, buying 50 heads of a dairy herd, took a loan for 35 heads, and the others bought for their own money.
The farmer can learn more about the requirements for the loan application on the site of a particular bank, with whom he plans to cooperate, as they are different for all banks. But the expert advises not to focus only on banks, because, in addition to them, in Ukraine, you can get funding from credit unions, through grant funds or state support.