"Farm finance is an attractive sector for brokers as competition is limited, loans tend to be large and secured against real assets."
Farm finance is on the rise and is an attractive sector. Farmers need to ﬁnd new sources of capital to sustain, grow and improve their businesses, as most high street lenders are cutting back on agricultural lending, due to its relative complexity.
The government recognises that “farming requires high levels of investment and the lack of sufficient funding is a major threat to these businesses and their prospects”.
Agricultural loans, while overlooked by many brokers has recently got more attention given the size of the opportunity with average bridge loan in the region of £2m and term loan in the region of £500,000. One of the challenges is accessing specialist finance, as the unique nature of farming makes it difficult for inflexible lending systems to cope. However, brokers able to access expert business lenders, can really help their clients build their businesses.
Farm finance is an attractive sector for brokers as competition is limited, loans tend to be large and secured against real assets. Also, the ability to raise cash by parcelling up land, without damaging the whole business, makes for more favourable outcomes if the business plan doesn’t develop as expected.
Rural property and businesses are a highly specialist area, given the challenges that farmers face, but don’t forget their appeal. Brokers should look to work and build relationships with specialist lending teams that understand business lending against agricultural land where a ‘one size fits all’ doesn’t work.
Some of the reasons why a farmer might want access to finance:
• Diversification to bring in new sources of income, reduce risk and build new businesses
• Purchasing farmland when additional acreage or a unique property opportunity may come available and often at short notice
• Property finance to develop, renovate or repair property for capital appreciation and income generation
• Renewable energy projects can be a great source of additional income and add real value to under-utilised land on a farm, or even turn waste products into revenue
• Livestock finance to expand the herd and increase productivity
• Recovery & restructuring when financial pressure is acute and a facility provides a window to take control and plan rationally
• Tenant farmers often have a right to buy their land at a discounted price but banks won’t lend to them
• Generational transfer when families are transferring their farm to the next generation, but also want to free-up capital
What should a broker look for when sourcing this type of financing?
• A specialist lender who understand the complexities of agricultural finance
• Ability to have first charge collateral over agricultural land and agricultural property
• Limited reliance on subsidy payments
• A business plan demonstrating understanding and commitment to success of the business
What do farm loans usually cost?
• Agricultural bridge finance loans are in the region of 1% a month
• Term loans which are typically up to 7 years are in the region of 6.5-10% per annum
Finding a lender who only lends against the agricultural sector is key given the complexities of the sector and the need to move swiftly to provide financing and the ability to adapt a loan to suit the borrower’s circumstances.