Financing Agriculture & Farming

farming agricultural lendingFinancing Agriculture & Farming

Financing the agricultural sector is difficult and many traditional sources of finance have disappeared. Farmers now need to find new sources of capital to sustain, grow and improve their businesses at a time when many farmers are looking to diversify or seek alternative sources of income.

The pressure on the agriculture sector is likely to increase as we move forward.

This pressure will be exacerbated via uncertainty over grants, subsidies and future government support. Minette Batters of the NFU said;

“Britain needs the new government to back British farming like never before; to invest in domestic food production so we can increase our productivity, create more jobs and deliver more for the environment… Government needs to act to ensure guaranteed access to a skilled and competent workforce; develop a framework for a more competitive and sustainable farming industry; put in place a long-term food strategy; and place science at the heart of policy making… This will allow farming businesses to continue doing what they do best – provide safe, traceable and affordable food for the nation.”

What this does is sum up the number of different factors impacting on farmers which are outside of their control.

External factors, uncertainty, political and environmental risk are all issues that concern lenders and provide easy reasons to decline borrowing requests.

That said, there are successful farmers and successful agricultural businesses. For them to access finance takes more expertise and understanding than ever before.

Why is agricultural finance changing?

The easy answer is that a lack of experience within high street banks means that any business that has an operating model which is not easily understood will struggle to secure borrowing from traditional sources.

The bigger picture answer is about diversification, restrictions on land use and a changing structure of government subsidies. This is before we even consider environmental changes and the impact of different weather patterns.

If you want an idea of the level of subsidies and their impact on profits then this graph says it all.

defra farming subsidies graph

If you add into this that farming subsidies are more uncertain now following Brexit and that subsidies going forward will be subject to greater political risk then the financing outlook for agriculture and farming businesses require an even greater level of understanding.

Diversification & Lending

With many farmers looking to diversify and better monetise the assets they have, it is worth looking at a couple of examples of finance that have been achieved;

  1. The farmer had a loan with a high street lender, this was repaid with the borrowing increased to redevelop a stone barn on his property. Their bank would not take the time to assess the loan as the project was not immediately cash generative. A more specialist understanding was required to get the deal completed
  2. Two brothers farmed together, one sadly passed away so finance was needed to settle the estate. This type of family structure and family operation is not unusual with many businesses in this sector being passed down through families. There was a dispute over the estate which unfortunately ended in court. Quick access to capital avoided a need for a forced sale and enabled the farm to continue

What this shows is that specialist understanding of farming & agriculture is required when seeking finance in this sector, without that understanding access to lending is only going to get harder and more problematic.

For those in the farming and agriculture sectors, trying to use traditional lenders to raise finance in a sector that requires specialist understanding is never going to be easy. The starting point has to be speaking with someone who knows the sector.

For any queries on financing agriculture and farming then get in touch.

By Dave Farmer

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