Farm Property Finance

Everything you need to know about farm property finance from the ground up, helping you understand agricultural finance.

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Throughout the agricultural sector, there are a great many farms which stand to benefit from expanding their operations through the purchase of property, whether they are arable farms expanding their acreage or pastoral farms investing in new accommodation for livestock. By investing in their business, farmers can increase their overall income, and generate greater profits; the agricultural sector rewards economies of scale more than many other sectors, so there is a powerful incentive for farms to grow as large as possible.

With expansion being such a key factor to a farm’s success, farmers typically seek to take advantage of new opportunities as they come available, but this is not always possible. Many farmers find that banks are slow to approve finance for agricultural borrowers, as they are reluctant to lend on anything other than a straightforward bricks-and-mortar property. The difficulties of securing finance from the high street banking sector contrast with the highly flexible and adaptable nature of bridging finance, which offers farmers the funding they need at the time they need it.

Bridging Loans for Property Purchase

Bridging finance can be used for a wide variety of purposes, but the most common use is for the purchase of property, a task for which this form of finance is ideally suited. Bridging loans are short-term secured loans which can be obtained extremely quickly, and as such are typically used to seize an opportunity before a long-term source of funding becomes available - they “bridge the gap” while finances are being put in place, hence the name. A common bridging scenario would be for the borrower to take out a loan that covers the initial purchase of real estate, then to seek a mortgage which would repay the bridging loan. This allows the borrower to complete their purchase without seeking a mortgage, which may not be available or appropriate in their situation - mortgages take a long time to put in place, and banks are very fussy about what they lend on.

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Why Use Bridging Finance in Agriculture?

There are few certainties in the world of farming, where one year can vary wildly from the next. Farmers are subject to a wide variety of external factors; weeks of rain can ruin a crop, while a foot-and-mouth outbreak can destroy a whole herd of livestock. Not only this, but farmers must also contend with the laws of supply and demand, where fluctuating market values can cause the price of their produce to plummet. These many factors make it hard to predict what the coming year will bring, and make it exceptionally difficult for farmers to build up any reserves of capital - there are always a million things which need paying for, and any money left over is usually saved to guard against unforeseen expenses. This is prudent but makes it difficult to invest in a farm’s expansion, because there is no easy way to build up the cash for a purchase or deposit.

This is where bridging finance comes in; when farmers require funding for a project, they need to know they can turn to bridging lenders as a reliable source of finance for any purpose. Bridging finance has numerous advantages over more traditional high street banks, which allows lenders in this sector to provide exceptional service to their customers:

  • Speed of Service: Bridging lenders work exceptionally hard to make sure finances are put in place as quickly as possible. Thanks to their short lines of communication and access to funds, bridging providers can often approve a loan mere hours after it’s applied for, with funds becoming available shortly afterwards. This contrasts with the many weeks necessary to arrange a mortgage and allows bridging borrowers to act quickly.

  • Adaptable Terms: While bridging lenders will always have a set of preferred terms for their loans, they are also usually able to meet the needs of their clients; terms can be extended, interest rolled up and additional security provided. While a mainstream bank might stick blindly to their checklist, a bridging lender will typically work to create a loan that suits their client’s need, not just their own.

  • Flexible Usage: Specialised agricultural finance providers will be able to provide loans for any number of agricultural investments, from milking sheds to wheat fields, and will judge each project on its own merits; emphasis falls on a farmer’s ability to repay their loan, not on their credit history, so bridging lenders are able to lend in cases where mainstream banks might not.

  • No Upper Limit: Bridging loans are generally available from as little as £10,000, and up to almost any amount - some of the largest bridging lenders finance projects in the hundreds of millions, though few farmers will anything like that amount of funding. This means that a bridging loan can be obtained for any amount, and farmers will not struggle to get the backing they need to succeed.

Securing a Bridging Loan:

Bridging finance can be secured against nearly any asset, though is most often secured on real estate. Although not all bridging lenders will accept a second charge security, there are many lenders who will, so farmers have the option of securing the loan against a property which is already under finance; a farmhouse with a mortgage, for example. Borrowers can seek a combination of security types, typically offering a first charge against the property being bought as well as a second charge on another asset.

Repaying a Bridging Loan:

A borrower’s “exit strategy” will be assessed when they apply for a bridging loan. In many cases, a borrower will seek to repay the loan by refinancing with a mortgage provider or by selling the property - however, with a commercial concern such as a farm, it’s possible to use future profits as an exit strategy. Bridging providers will work with their customers to determine whether their exit strategy is viable or not, and help them to devise a workable plan.

Frequently Asked Questions

What is a bridging loan?

A bridging loan is a short-term loan secured against property. It allows you or your business to “bridge a gap” until either longer-term finance can be arranged, or the underlying security or other assets can be sold.

What is a commercial bridging loan?

Commercial bridging loans are, as their name implies, bridging loans that are secured against commercial property.

Can commercial bridging loans be obtained on both a 1st and 2nd charge basis?

Yes. Whilst not as widely available as 1st Charges some lenders will happily write 2nd charge commercial bridging loans.  

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