Within the agricultural sector there are often many demands upon a farmer’s bank balance. Not only are the requirements of owning and operating a farm tough to meet from day to day, but the nature of agriculture is so susceptible to market and environmental forces that it’s very difficult to put any cash aside. Because it’s so hard to build up a store of capital farmers are very often unable to take advantage of growth opportunities as they arise, and are instead forced to operate within the confines of their cash flow. With a business like farming, though, this is highly restrictive, and it places strict limitations on what a farmer can do to improve their business. Being able to act quickly and adapt to changing situations is key for success, but without outside funding farmers are unable to do so.
Agricultural finance is the solution to this problem, as it enables farmers to quickly fund purchases of land without completing lengthy credit application for mainstream lenders. By moving swiftly to close a deal, farmers are able to increase their farm’s acreage reliably and confidently, and can often submit bids well before their competitors are ready to commit.
As a form of loan, agricultural finance for land purchases must be carefully considered before any borrowing commitment is undertaken; anyone considering this form of finance should consult a qualified financial advisor before proceeding with a loan.
Agricultural finance for land purchase is a form of bridging loan, a specialised financial product that is often used to close deals quickly. In essence, a bridging loan is a short-term high-value secured loan that is used to “bridge the gap” while a long-term solution is put into place (hence the name). Generally speaking, although a bridging loan may be more expensive in the short term than a mortgage, it is also much quicker and easier to put in place, and is especially useful in situations where time is of the essence.
Bridging finance is commonly used to secure a time-sensitive opportunity. For instance, when land comes up at auction there is typically a short 28-day period within which the purchase must be paid for in full. A mortgage lender works to an entirely different timescale to bridging providers, and probably won’t even manage an agreement in principle by this point. A bridging lender, on the other hand, will likely be able to agree to a deal within 24 hours, and can provide funds in a matter of days thereafter.
The ability to purchase land at auction is exceptionally valuable to farmers who wish to enlarge their current holdings, because it’s often a great way to secure a bargain price. By being able to move more quickly than competitors, farms which take advantage of bridging finance can often out-manoeuvre and out-perform their rivals.
Once land has been secured with a bridging loan, the borrower will typically seek to negotiate some form of long-term financial solution to minimise their ongoing expenses. Depending on the size of the project and the availability of necessary funds this may take several months, but bridging finance can usually be arranged for long enough to cover this period. If the loan term should near expiration before the borrower has arranged refinance, they can often arrange to extend their original loan.
The most common method of securing a long-term financial solution is for the borrower to arrange another loan package designed to last many years. Typically, this form of finance will extend for a long period of time, and will cost much less over the course of a year than a bridging loan would do. Therefore, a bridging loan may be quickly put in place to secure a purchase, and a long-term solution may be sought shortly afterwards to repay the original loan.
The flexibility of bridging lenders enables them to provide a wide range of financial facilities, and each individual borrower is able to arrange a bespoke loan that precisely meets their needs. As a general rule, most bridging lenders have a lower threshold of £10,000, and there is no real limit to how much they will lend (many large lenders can finance development loans in the hundreds of millions of pounds). In addition to providing almost any sum, borrowers are also able to arrange loans to cover a specific timeframe - a typical minimum loan would have a term of 1 month, and loans can generally be arranged for up to 18 months.
By enabling borrowers to choose loans that exactly meet their individual needs, bridging providers ensure that their lending is responsible and appropriate for their customer’s requirements. Because bridging lenders do not try and force their customers into a series of “check-boxes”, they are able to design true financial solutions that are as unique as their customers.
When seeking any form of financial product it’s important for borrowers to fully grasp the associated costs and responsibilities of a particular loan. With a bridging loan, the lender is securing the money they provide against an asset (usually the land that is being purchased). Should the borrower fail to fully repay the loan, the lender will be entitled to reclaim and sell the land in order to recoup their initial investment.
Because of the potential implications of failing to repay the loan, borrowers must be certain that the fee structure and payment plan of the loan meets their needs, and that they have a secure exit strategy in place for repaying. Luckily, most bridging lenders are very flexible when it comes to creating a loan package, and are able to tailor their loan architecture to meet their client’s needs. In many cases, borrowers are able to “roll up” interest until the end of the loan, which minimises ongoing costs - ideal if a cash crop is anticipated, and costs must be kept as low as possible until it is sold.
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