Finance Professionals’ Corner We’ve asked a selection of our professional finance partners to offer insights for farmers and landowners.
Arranging agricultural finance By Mike Lord, Head of Farms and Estates at SPF Private Clients The current appetite for lending to UK agricultural businesses is still very strong, with several lenders active in the market, from dedicated agricultural teams in the main high street banks to private banks and specialist lenders.
Background to the business and people – it is not just about assessing the numbers, lenders want to understand the history of the farm and people behind it to develop a relationship and understand how you operate.
As the agricultural sector continuously evolves, securing financial support is crucial to continually grow farming operations. Whether it is for purchasing new land, investing in machinery, expanding operations, or seeking other income streams via diversification projects, obtaining agricultural finance is essential. For farmers and landowners looking to access funding for these projects, understanding the application process is pivotal.
Complex structures – for larger businesses with several separate companies, partnership and trusts, understanding how these all fit together is key.
Fundamentally, the lender needs to understand how much you want to borrow, what you want the money for, how long you want it for, what security is available to the bank and, most importantly, you must prove to the bank that you can afford to repay it. To ensure a smooth and successful application, you must provide key information, including: Financial accounts – the last three to five years of accounts, including profit and loss accounts, balance sheet and cash flow statements, all crucial for assessing the current and historic financial health of the business. Business plan and forward projections – your business going forward may look different to the previous three years’ accounts so if there is a fundamental change, lenders will want to see how this will impact profitability and cash generation. Indicative asset valuation – the asset valuations within the balance sheet in your accounts may be at historic ‘cost’ levels so it is essential to understand the indicative value of current land/property, machinery, livestock and crop valuations to understand the true ‘net worth’ of the business. Existing borrowing - a breakdown of any existing lending including loans, overdrafts and hire purchase is essential to understand current annual debt commitments.
ecurity – most lenders want to take land/property as S security, so understanding the legal ownership, land registry title numbers/plans and indicative values is essential. Lenders typically lend up to 60 to 75 per cent of the value of the security. Unsecured lending is available for the tenanted sector but lenders want an ‘agricultural charge’ over the value of machinery and stock so ensure you have updated values of these. ngoing monitoring – if the lend is complex and subject O to new incoming streams being developed, the lender may want to monitor the progress of the business via quarterly management information until the business is performing as per the original budget. Banks are keen to lend to businesses that are improving efficiencies and funding projects which are helping businesses on their journey to net zero, by reducing carbon emissions and farming in a more sustainable/environmentally-friendly way. Some lenders offer discounted interest rates or reduced arrangement fees if you fall into these categories. With various options available when it comes to structuring your financial requirements, discussing your needs with an independent broker who specialises in agricultural finance and can search the whole market to obtain the most suitable finance package is crucial to the success of your business. Please get in touch for more information and a no-obligation chat. Mike Lord 07519 326098
mlord@spf.co.uk