How to harvest the best farm finance as Brexit looms

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The agricultural community is set to continue to look to buffer the potential loss of subsidies given the uncertainty of the effects of Brexit.

That’s the verdict of Robert Suss, co-founder of UK Agricultural Finance, who predicts an increase in the rural community looking at diversification strategies in the wake of the impending departure from the European Union.

Suss says that one of the challenges, however, is that following the financial crash funding the agricultural sector “is difficult and many traditional sources of finance have disappeared”. 

That’s where, says Suss, UK Agricultural Finance come in, as a specialist business lender to the agricultural sector that offers “traditional, responsible lending to farmers throughout England, Scotland and Wales”.

He explains: “Farm finance is on the rise again and is becoming an attractive sector as farmers need loans that can be secured on real assets as farmers now need to find new sources of capital to sustain, grow and improve their businesses.

“The government has recognised that farming requires high levels of investment and the lack of sufficient funding is a major threat to these businesses and their prospects. And brokers able to access specialist 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 asset. The ability to achieve liquidity by parcelling up land without damaging the whole business makes for more favourable outcomes if the business plan doesn’t develop as expected.”

The reasons why a farmer would want access to finance are many and varied, adds Suss, and include diversification, where farmers need capital to diversify and build new businesses.

Another reason might be purchasing new farmland when additional acreage or a unique property opportunity may come available and often at short notice.

Then there is property finance, which allows farmers to develop, renovate or repair property for capital appreciation and income generation; while 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.

Often livestock finance is utilised by farmers to expand their livestock holdings – and recovery and restructure finance is needed when financial pressure is acute and a facility can provide a window to take control and rationally plan.

Also, tenant farmers often have a right to buy their land, while generational transfer can see farmers who are looking to transfer their farm to the next generation use such a facility.

Suss is adamant that the farmers business plan should demonstrate “how a loan helps them generate sufficient income or capital to enable them to repay the loan, refinance with the High Street or rolled into a term facility once completed”.

So, exactly what should a broker look for when sourcing this type of financing? Suss says that brokers should look to work with specialist lenders who understand the complexities of agricultural finance

He adds: “Look for opportunities where a farmer can demonstrate a loan is affordable, improves the value of their business and that they have a credible plan to repay the loan.

“Seek out the ability to have first charge collateral over agricultural land and agricultural property, along with a non-reliance on subsidy payments and a business plan demonstrating understanding and commitment to success of the business.”

Meanwhile, agricultural loans – often overlooked by many brokers and master brokers – have recently got more attention given the size of the opportunity with average bridge loans in the region of £2million and term loans in the region of £500,000, generating strong broker commissions.

It is vital to have a steer on what farm loans usually cost; agricultural bridge finance loans are in the region of one per cent a month, while term loans which are typically three to seven years are in the region of 6.5-9 per cent.

Suss concludes: “Rural property and rural businesses is a highly specialist area given the many 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.

“It’s important to work with lenders who work with the leading experts in agricultural valuation, security and restructuring to ensure swift informed and fair decisions and face to face underwriting.

“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.”

If you would like to learn more about Agricultural Finance then have a look at our ultimate guide to farm finance

Carl Eldridge is a journalist with more than 25 years’ experience working on local and then national newspapers, including a spell on the City Desk at the Daily Express, before switching from print media to the internet.

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