Funding Bay Blog

Finance for Farmers: Agricultural Funding Options

The British farming industry is worth over £120 billion, and is an integral part to the UK economy. The sector is made up of 149,000 farm businesses across the country, more than the number of businesses involved in education, motor trade, finance and insurance. The industry is however experiencing acute financial pressures, or a ‘cash flow crisis’,  as they face some of the toughest market conditions in recent times. Competitive supermarket price wars alongside a sharp decline in milk demand has led to an unpredictable agricultural market.

However, in the face of such struggles, British farmers look to diversify and modify their farms in order to generate an increasing profit in the current context. Investments in new machinery, land and innovative new farming techniques and management will allow British farms to continue to flourish.

British farmers should consequently search for the most appropriate and beneficial financial solutions for their own business. Alternative finance options provide farmers the chance to subsidise their farm by offering creative ways to refinance your operations in order to open up significant cash flow, provide cash-out options for operating expenses alongside the continual modernisation of the farm.

Financial options should be considered as a viable solution for farmers in order to prepare and excel their business for substantial growth. Here, we will overview some of the best financial options available for farmers and those that operate within the agricultural sector.

      1. Unsecured Loan

The benefits of unsecured loans are relatively obvious; by receiving a large sum of cash today and repaying over a longer period of time will allow a business to invest today in order accelerate its growth tomorrow.

By their nature, unsecured loans are not supported by security on assets of the business, which means that they can often sit alongside other forms of funding. In the asset heavy world of agriculture, this is critical.

When considering an unsecured loan it is important to be really clear what you are going to spend the money on and whether you will be able to make and keep up the repayments. On occasion, if entered into without thought, the repayments can be more of a hindrance, than the principal was a help.

The unsecured lending market has historically been driven by the high street banks, but in the post-2008-crisis world, the banks’ appetite has come down substantially. As a result, alternative lenders such as Iwoca and Funding Circle have started to take market share. The good news for borrowers is that there is a huge appetite for this type of lending from the alternatives and nowadays there is a solution out there for just about everyone.

      2. Revolving Credit Facility:

Revolving credit is a typically variable option, for the the interest charged on the loan is dependent on when the credit is used. This is a flexible line of credit that allows a business to borrow, repay and then borrow again.  It is extremely flexible loan that allows the customer to draw down funds as and when they need. They consequently then only pay interest on the funds that they use.

For example, a farmer’s facility might be approved for £500,000 but they only want to use £100,000 at this current moment. The facility is in place, but the farmer has the freedom to draw from it when they need. It is a backup financial plan, similar as to how a credit card facility is set up. It is a ‘use in emergency’ type of loan, and if you don’t need it, you don’t pay for it. Furthermore, you can pay it back with no early redemption fees, as it is a fully amortising facility.

      3.  Asset Finance:

A predominant concern when applying for a conventional business loan is that you may feel that your business does not meet the necessary financial criteria. This can be disheartening and hinder the required expansion for your business.

Asset finance offers a more flexible solution and makes it easier to obtain a loan. Typical agricultural assets that can be financed often include tractors, trailers, other farm machinery, forestry equipment, vehicles, bulk haulage, renewable and recycling equipment and even a fit out for an office or barn. The asset will install confidence and assurance with the lender, so that the farmer in turn can make the  necessary plans so that the business can continue to expand.

Agricultural asset finance is an excellent tool for farm owners, as it allows you to acquire new equipment and machinery, without the need to pay out a large cash lump sum. With access to over 250 lenders, there is no asset on a farm that Funding Bay can’t fund. Find out more and see the various options that can be tailored to find the best solution for each farm.

     4. Invoice finance

Payment terms in the farming market is a bona-fide nightmare. The cashflow impact of this is often the biggest blocker to future growth for ambitious businesses.Invoice finance frees up the cash tied in your unpaid invoices, so rather than receive cash on (for example) 90 day terms, you can receive the vast majority of this cash shortly after raising the invoice.

Historically this form of financing was seen as a ‘last resort’ for failing businesses, but not any longer. Over the last 5 years a raft of innovative, flexible new players such as GapCap and MarketFinance have come into the market, supporting businesses on a high growth curve by delivering a faster, more flexible and more transparent service than offered by the historical providers.

To find out more about which loan is right for you click here to contact Funding Bay or call us on 0203 176 0115.

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