For most of our agribusiness clients, the cost of the interest rate is the largest monthly bill that they have to meet. An interest rate that you’re sure you can afford is of utmost importance if your business is to remain sustainable.
Clients often don’t pay attention to the spread of their fixed term loans. By simply choosing a lower rate (or an easier to meet rate) there may be a greater risk of loans coming off term at the same time and possibility resulting in a higher all-up rate.
The fundamentals of interest rate pricing are based on a matrix around cash surplus, scale, equity, and historical performance. In today’s market, these are reviewed annually on the basis of the annual accounts completed by your accountant.
Transparency is the key. You need to have an honest and open relationship with your bank in order to conduct a discussion around your bank margin and agreement.