Finance for agricultural businesses

What types of loans are available for farming businesses?

If you are looking to grow your farming business, purchase new machinery and equipment, or livestock, it might make sense to consider a farm loan rather than dip into saved-up cash reserves, which you may need to tap into in the future. To get the right finance option, you will need to understand what type of business loans are best suited to agricultural businesses.

Agricultural finance can include many different forms of lending for different purposes including rural finance for farms, agricultural land or commercial property finance, and business financing for working capital and equipment. Let's take a look at what kinds of lending products are available to agricultural businesses.

Purchase of land

If you have spotted an opportunity to gain additional acreage or to buy a new property, you will need to move quickly to secure finance, as often these deals come and go to the first mover. Most land or property loans don’t have early redemption charges (if you repay all or part of your mortgage before the end of the agreement) so you can snap up new land without any worrying about being penalised for settling your loan early.

• Typical loan amount £100,000 to £10 million

• Loan to value threshold of 70%

• Secured on farmland or agricultural property

• No age restrictions

• Duration 1 to 8 years

Livestock finance

It might be more important to you at the moment to purchase more livestock. Different financing options will cover you for auctions, B&B contracts, heifer replacement, or simply to make the most of a good harvest. You can easily secure a new lending facility against agricultural land and buildings, so you can access cash when you need it the most. With a rolling loan facility, you can withdraw money as you buy or sell livestock for the duration of the agreement, with no additional charges, as long as you stay within your credit limits.

Equipment finance

Without the right equipment and machinery, your business can’t operate to the highest standards. However, purchasing new equipment can be prohibitively expensive, especially if you use cash. This is where equipment finance comes into play, helping you get the tools and equipment your business needs with the need for a large upfront cash payment. This can be done through asset finance, business loans, and leasing arrangements.

Asset finance

One type of financing for rural businesses is asset finance, where you can lend a new tractor or combine harvester without paying for it upfront, you will only need to make monthly repayments with favourable interest rates. This is a flexible option for the short term and can be used for the following assets:

• Forestry equipment (chainsaws etc)

• Tractors, balers, and other farm machinery

• Plant equipment

• Equipment related to renewable energy

• Automatic milking machines

Restructuring & recovery

When cash flow has taken a hit due to changing market conditions and the cost of doing business, it might make sense to talk to an expert about getting out of a sticky situation by restructuring your debt. Many lenders will see the big picture and understand the potential of the business, without focusing unduly on the monthly cash flows. A long-term finance option might provide a get-out-of-jail card for struggling businesses. Alternatively, you could find out more about how to successfully negotiate an exit term with the bank and utilise the knowledge of experienced agricultural receivers to get you back to business.

Business loans for farmers

Another avenue for agricultural operators to access capital is through a business loan. This can come in two distinctive varieties: unsecured business loans and secured business loans. The main difference is the use of collateral, which enables you to borrow larger amounts on better terms. You can still borrow at favourable interest rates via an unsecured loan, and this may suit younger businesses with a short trading history, or businesses that aren’t comfortable putting forward valuable assets as security, this might also include businesses with bad credit. You might even need to boost your working capital (the liquid funds that a farm operation has available to meet short-term financial obligations).

Read more about the key differences between secured and unsecured business loans.

Leasing and hire purchase

If the equipment you need for your business is for long-term use, using a hire purchase is a great idea. You can pay a fixed monthly amount and when the last payment has been made, you officially own the asset. Many agricultural business owners use a HP agreement to secure new machinery, farm building, and commercial vehicles. Leasing is very similar yet you don’t own the asset at the end, which makes it easier to upgrade to the latest equipment, and reduces the risk of getting stuck with old equipment/machinery.