The British farming sector plays a pivotal role in contributing to the country’s economy, with nearly 150,000 farm businesses operating across the country. However, as of late, and especially following the effects of the lockdown, the sector has been facing cash flow problems which means that British farmers have had to find creative ways to continue financing their respective operations. So, which are the best alternative financing options for farmers?
Which funding options are available to farmers?
Let’s quickly review some of the best alternative financing options currently available to farmers:
Revolving credit
This is a variable financing option, one where interest is charged on the loan according to when the credit is used. This flexible form of borrowing lets farmers borrow and repay, and then borrow again when the need arises. Therefore, interest is paid merely on the funds which are used.
Let’s say you get an approved revolving credit facility for £1,000,000 but you only need to use £500,000 for the time being – you have the freedom to draw the rest whenever you wish. It works similarly to how a credit card facility does and you can always pay it back without an early redemption fee.
Invoice finance
Payment terms in the farming sector can be quite tough sometimes, and the cashflow impact which comes with borrowing and paying back often poses a serious hurdle to future business growth.
The invoice finance funding option frees up cash which is tied up in unpaid invoices; instead of receiving cash for, say, 90-day terms, you receive most of it soon after you raise the invoice. However, this kind of financing should always be used as a last resort in ‘extraordinary circumstances’ where the business may be close to failing.
Unsecured loan
Many farmers go for unsecured loans because there are obvious benefits to be had: receive a large sum of cash right away and repay over a significantly longer term, allowing you to invest that amount today in order to accelerate growth for the future.
Unsecured loans do not require any security on business assets – this means you can use them alongside other kinds of funding, something which is quite important in a sector driven by business assets.
However, if you’re considering an unsecured loan, you need to give it a careful think as to how you’re going to spend the money and whether you’ll be in a position to continue the repayments. On many occasions, farmers have had to cancel unsecured loans or end up with a heavy debt, simply because they couldn’t keep up with the repayments.
Asset finance
Before setting out to get a loan, many farmers feel that their business many not meet the borrowing criteria, which can be very disheartening indeed.
Asset financing puts this concern to rest as it’s a very flexible option, making it fairly straightforward to get a loan. Agricultural assets which can be financed may include anything from trailers and tractors to bulk haulage, renewable equipment, forestry equipment and even your barn or office fit out.
This form of financing not only instills confidence and trust in the lender, but also allows farmers to access new machinery and equipment without the need to pay a large lump sum.
If you want to know more about the best alternative financing options for your business, get in touch with the team at Funding Bay!
