Using Agricultural Loans For Short-Term Farm Financing Needs

Farming is considered by many to be the backbone of Britain’s economy, with around 57% of the UK’s land used for agriculture. 

Not only does this sector provide substantial income for the country due to the crops it produces, but also billions in tourism every year, as people come from all over the world to visit the iconic British countryside.

However, as Brexit creates uncertainty as to how the industry will be funded, farming businesses are looking elsewhere to protect their farms and organisations during these unpredictable times.

The three main ways that farmers can ensure the continued success and growth of their farms are by:

1. Cost Cutting

Whilst it may seem cost-efficient to continue using older equipment, instead of investing in new resources, this can be a false economy. In fact, using out-of-date equipment can end up costing money in the long run, due to slower production, increased risk of breakdown and even accidents and injuries caused by working with faulty machinery. 

2. Increasing Efficiency

Working faster and more efficiently is an obvious solution to increasing profit.  Newer technologies and machinery, or more land on which to work, helps farms to maximise their potential for growth.

3. Diversifying

Many farmers are already looking into new technologies and opportunities, including various forms of renewable energy, to diversify their existing revenue streams. However, it does cost money to get these technologies installed and set up, and many farmers typically don’t have access to the large amount of cash required to do this. 

By utilising these three methods farms can turn from loss making to profit making within a short period of time. 

Without funding in place though it is impossible to buy the latest equipment which can improve efficiencies or reduce the need for manual labour. Neither can investments be made in renewable energy or to fund the construction of a farm shop.

In these situation short-term farm financing requirements are typically met with agricultural loans. 

What Farming Assets Can Be Financed With Agricultural Loans?

Farmers looking to expand can use agricultural loans (also known as farm loans) which are a type of agricultural finance facility that can be used for a wide range of different purposes. Land can be bought or developed using these short-term bridging loans, as can assets such as machinery, tools and vehicles.

Farm equipment financing can be used to purchase the following:

• Tractors
• Combine harvesters
• Farm vehicles
• Milking and dairy equipment
• Forestry machinery
• Biomass boilers
• Recycling and plant equipment
• Solar PV

For a farm financing these assets in this way a detailed plan has to be in place showing how the loan will be repaid within the required timescale. Using an experienced agricultural finance broker such as Finbri is useful for this as we know what the lenders typically need to see in your proposal. Contact us to find out more. 

Purchasing Land With A Farm Land Loan

At a time when the farming industry’s future is uncertain, it can be difficult for farmers to make major financial decisions. Whilst additional acreage or a new property can be instrumental in assuring the growth of the business, finding a loan for an agricultural land purchase may be challenging. 

Agricultural loans allow you to obtain an affordable source of funding in a short space of time, allowing you to secure land and property before other buyers can swoop in, or purchase land and property at auction.

Why Not Use Traditional Lending Instead Of A Farm Loan?

Whilst traditional lending typically offers lower interest rates and longer terms than this type of loan, a farm financing these types of purchases typically needs much more flexibility than they can offer. 

Agricultural loans are more niche and flexible than traditional loans, meaning that if your financial situation changes as the result of crop failure or the time of year, your loan commitments are able to adapt.

Some examples of where farm loans can be used:

• When a tenant farmer has been offered the opportunity to buy, but the bank will only lend in accordance with the discounted purchase price, rather than the valuation figure.
• If you are looking for short-term, temporary finance whilst waiting for your application for long-term finance to be approved.
• If you are looking to buy, develop and sell traditional buildings, or use them as holiday rentals.
• If you have the opportunity to buy more of the land that is adjacent to your farm
• When your bank has declined to offer you finance to expand your herd
• When your bank has changed its lending policy, and can no longer provide financial support that you rely on
• You need to pay for fertiliser, seed or other resources to boost your crops, and want to pay for these after your crop has been harvested.

Can Agricultural Finance Be Used To Resolve Cash Flow Issues?

A 2020 survey by Hitachi found that cash flow is in the top three concerns for British farmers, who have steady costs going out throughout the year, but income that comes in only sporadically and at certain fixed times in the year (such as harvest time).

Because of the complex nature of the farming business, this issue is compounded by the fact that traditional lenders are often uncomfortable lending to businesses in the farming sector. Relying on a small overdraft, if they are lucky enough to have one, will generally not cover the gaps in cash flow that can typically occur on a modern farm.

A farm financing the payments of one loan from another is a perfectly acceptable use of agricultural loans, as is any other short-term time critical cash requirement. Because bridging finance is secured on land and buildings, farmers are able to borrow what they need against property they already own, in order to free up some cash temporarily.

We Can Help With All Your Farm Financing Needs

Finding the right agricultural finance broker is the first step in sourcing a great loan with the best rates and most favourable conditions. This is because a broker will:

• Have access to a range of specialist lenders who understand the agricultural sector and are able to offer products that factor in the intricacies of the industry.
• Understand how best to fill out an application, so that the farmer can demonstrate that they have a good exit strategy, can afford the loan, and understand the value of their business.
• Work quickly and fight the corner of the borrower, ensuring a quick agreement-in-principle and speeding up the purchasing process.

We're a whole-of-market comparison specialist, working with one of the UK’s top brokers in the agricultural field to secure funding for farms and agricultural businesses. 

We can help you to finance a range of assets and projects, from purchasing land to restructuring your business, and paying for the agricultural equipment needed to diversify.

In most cases we are able to get a same-day agreement-in-principle and we are able to provide expert support throughout the entire process.

To get started or ask any questions, just call 01202 612934, or send us a Quick Enquiry to get the ball rolling.