The business of farming is an inherently unstable one, where crop yields can vary from year to year with little predictability or warning. On top of this, the market forces of supply and demand can have a drastic impact on the value of a farm’s output from one year to the next. There’s little warning and very little a farmer can do to defend against these external factors; the nature of agriculture is that farmers rely on their farms year-round to provide for them, and they have little control over these outside forces.
In such a fragile marketplace it’s important that farmers have a safety net; something that can be used to help them get back on their feet after a particularly bad year, or a failed harvest. Agricultural finance can be used to rebuild and recover a farm when there is no more money left in the bank and provides a stable source of income for restructuring an agricultural enterprise. The ability to access funds quickly for a variety of different needs is vital for farmers who may need money in a hurry to feed animals or plant fields, and the types of bridging finance that can be used to cover these expenses are highly flexible and adaptable to many situations.
Although recovery and restructure finance is a highly valuable tool for helping farms to withstand economic hardship, it should be considered carefully before farmers commit to it. These forms of finance are secured against the farm’s assets, which means that if the loan goes unpaid the lender will be entitled to recover the money through the sale of the farm’s property. Therefore, any farmer considering finance as a means to recover and restructure their farm should consult an experienced financial advisor before they do so, to ensure that this is an appropriate solution in their circumstances.
A farm in financial difficulty is put in a particularly difficult situation. While many businesses face economic hardship from time to time, a farm is exceptionally vulnerable to fluctuating income (as highlighted above), and the consequences of poor profits are also much worse than for other businesses. For instance, a dairy farmer has no option but to feed and care for their herd, no matter how poor the preceding year has been, and the cost of maintaining livestock is one of the top costs for pastoral farms. Likewise, an arable farmer will need to replant their land for the next year, and must purchase sufficient supplies to do so; even if they’ve failed to make a profit, they still have to pay out in order to have a harvest at all the following year.
Because of the exceptionally high pressure on farmers to meet these costs, agricultural recovery finance is a vital part of any farmer’s resilience strategy. Without the option to borrow funds to keep their farm up and running many farmers would have no choice but to throw in the towel when times get really tough. With recovery finance, though, farmers have the chance to rebuild and keep their farm running, in the hopes that the following year will be kinder.
Farming is a highly traditional livelihood, where land has often been in the same family and put to the same use for many generations. A pig farmer’s father may have kept pigs, and his father before him, and his father before him, but if the price of pork plummets it can become crucial to adapt in order to survive. Finding a new, more profitable use for a farm’s fields can be the difference between a farm’s survival and failure, but it’s not at all cheap to repurpose an entire farm. For many farmers, a single bad year can wipe out all their savings; the cost of keeping a farm going without the profits of a good year make it tough to build up any capital whatsoever.
In order to quickly and smoothly repurpose a farm, it’s necessary for farmers to seek restructure finance, which is designed to give farmers the capital they need to turn their farms to more profitable sectors. Converting pig sties into cow sheds, for instance, or setting aside land for a horse stable, can be enough to enable a farmer to make a greater profit in the following year, and can keep a long-running business afloat in times of need.
The funds from a recovery package are, like any loan, repayable with interest. However, the flexibility of many lenders in this area enables borrowers to choose a fee structure which suits their needs, and farmers especially benefit from the ability to defer loan payments until the end of the term. This is known as “rolling up” payments, and though it is usually more expensive in the long run it also allows farmers to minimise their ongoing payments; in the aftermath of a poor year it’s hard for farms to generate much in the way of profit until the new harvest is brought in, so cutting back on ongoing payments can be vital.
Before approving a recovery package a lender will want to know how the borrower intends to repay the initial loan. Their repayment plan is known as an “exit strategy”, and usually consists of either a long-term financial solution (such as a remortgage), the proceeds of a sale, or the income from goods and services. For example, a farm might need to quickly pay off some debts that have become due; in order to repay, they must sell off some unneeded fields and unprofitable land, but this will take time. In order to meet the immediate bills, they can take out a recovery loan to quickly provide a lump sum of capital, and then complete the sale of their existing assets in their own time. This prevents the need to push for a quick sale, which often results in the seller being forced to accept a low bid for their property.
Yes. Any advice that concerns a property which you have ever lived in is regulated by The Financial Conduct Authority and your broker must be registered by the FCA.
No. Some brokers specialise in complex bridging finance for property developers and as such choose not to offer regulated residential property loan advice.