Some Mzansi farmers are struggling to access finance for their farming operations. Not because they’re doing something wrong, but because of the complexity of the documents for funding they have to fill in.
Financial lending institutions often require the papers for funding to be up to date and with accurate information to ensure that the application process is able to to the next phase.
Food For Mzansi caught up with some of the emerging farmers who have encountered problems when applying for funding. Some of their applications are still pending, while others were denied.
‘Make it easy for us’
Lutendo Maumela, a macadamia farmer in Limpopo, said applying for funding puts extra pressure on her since all she wants to do is farm, something she is good at.
“The difficulty comes when drafting the proposals or business plans. This is when you are asked whether you have the security equivalent to the amount you want to borrow. At times, it’s difficult especially when you’re just starting out,” she said.
Maumela said it is difficult for the youth to crack the whip in getting funding, especially those who are from previously disadvantaged backgrounds.
“It would really help for the application forms for funding to be much easier, especially for us who have got the land. I have 20 hectares of land, however, I need funding to upgrade my operations,” she explained.
Poultry farmer Nqobile Khumalo from Warrenton in the Northern Cape, told Food For Mzansi that financial institutions need to invest in having offices in rural communities where farming actually takes place.
Other added costs
“Filling out forms does not really give me much of a problem. The only challenge is that I have to spend R200 to get to my nearest funding institution which is in Kimberley. When I get there, all I do is sign a document and it doesn’t guarantee that my application will be approved,” Khumalo said.
She added that the long process of applying for many funds or assistance from different institutions was tedious and expensive with no guarantee that there will be a return on investment.
“For example, you make an effort to get to their offices and then the system might be down and you’ll have to return in a few days. Quotations sometimes expire in this period and new ones are required while nobody gets back to you,” she said.
Khumalo urged financial institutions to be lenient when it comes to rural farmers. She also said online applications are complex and with load shedding, data and network problems, it is important to reconsider online applications for funding.
Food For Mzansi spoke to one of the financial institutions on the dos and don’ts that a farmer must be aware of when applying for funding.
Land Bank guidelines
- Consider your capabilities when looking at a particular farm, and identify any gaps with regard to technical ability, management, marketing skills, etc.
- Get as much information on the farm, water sources (if registered), vine/orchard numbers, financial statements for the past three years for going concerns, production figures for the past three years (key performance indicators), property descriptions and size, and buildings on properties.
- Determine the full project cost – Land, capital expenditure and operational expenditure requirements in order for the farm to be commercially viable (all costs to be accounted for, i.e. transfer duty fees, value added tax (VAT) payable, bond fees, all other improvements required).
- It is important to bear in mind the timing (window period) for the planting of crops and purchase of livestock as these aspects play an important role in the production cycles and ultimately repayment ability
- Check your credit record to ascertain if you have any defaults, judgements, or bad payment records. This may be obtained free of charge from all credit bureaus once a year (terms and conditions apply).
- Work with the local extension officer and economist to determine financial forecasts, etc. (turnover, expenses and disposable income available towards payment of debt).
- Decide on your company structure or whether you will apply as a sole proprietor.
- Understand the markets, suppliers and operations of the farm, the workforce required, and all costs associated with running the farming operations.
- Identify risks and be realistic with your assumptions.
Check the list of exclusions to ascertain whether you are eligible for funding under the blended finance scheme.
The loan application process
The loan application process commences with an initial assessment where the bank conducts a pre-screening exercise to determine debt serviceability and security values followed by a due diligence and credit decision.
In order for the bank to conduct the pre-screening assessment, the following information or documents are required to be completed by the applicant:
- Land Bank loan application forms: This provides critical information about the farm/assets being purchased, i.e. purchase price, location, extent (hectares), the composition of the land, type of crops, average yields, water sources available, income potential; assets and liabilities, etc.
- The total funding required in order to commercialise the farming operations: a) Full purchase price with transfer duty fees, VAT, and bond fees. b) Capital requirements – irrigation systems, the establishment of orchards, fencing, buildings. c) Production means (tractors, implements, equipment. d) production inputs.
Any other relevant information that will assist the bank in assessing viability – i.e. orchard census/tree analysis / registered water rights volumes, etc. that will enable the bank to complete the pre-assessment stage.
Cash flow projections are required in order to complete the pre-assessment process. The cash flow projections must include key assumptions such as area cultivated, yield, price, livestock numbers, tree numbers and ages for orchards.
The seller’s past three years’ financials or production figures are also required for farm acquisitions as going concerns.
Should the initial assessment be positive, the bank will require supporting documents listed on the application form to proceed with the due diligence.
ALSO READ: Land Bank: Blended finance for black farmers
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