Farm Diversification Loans Aren’t Just for Big Farms: Even Smallholdings Can Diversify

In the face of evolving market demands and policy changes, the sustainability and profitability of small farms increasingly hinges on effective diversification. Farm diversification loans offer vital support in this transition, allowing farmers to explore new income streams beyond traditional agriculture. UK Agricultural Finance stands at the forefront of this movement, providing bespoke financial solutions that empower small-scale farmers to innovate and thrive by tapping into less conventional agricultural practices.

Borrower Background: From Tree Surgery To Farm Diversification

The borrower, an established tree surgery specialist, had cultivated a robust business over 20 years, offering comprehensive tree care comprehensive tree care services including crown thinning, tree removals and arboreal assessments. This venture served as the main income stream for the borrower.

Adjacent to the tree business, the borrower had purchased a 10-acre smallholding featuring paddocks, a mature tree stock and some livestock. There was no permanent residential property on the smallholding, but the borrower had permission for a temporary cabin, which he had been advised should provide the route to a permanent home once the farm activities were more established. 

The borrower used the woodland to supply his own wood burner as well as to supply logs locally. He also planned to expand the log supply business by using an existing barn for log drying and collecting additional wood through the tree business. His small range of livestock, including sheep and chickens, provided a small income, but will, with his future plans, contribute more significantly to the revenue of the smallholding.  

The integration of these diverse activities epitomises the potential of farm diversification to enhance the sustainability and profitability of small-scale agricultural endeavours. This approach is increasingly popular among smallholders who balance farm work with external income sources. 

Financial Support for Farm Diversification 

Navigating financial challenges, the borrower found traditional funding inaccessible for his ambitious diversification plans. The breakdown of a personal relationship not only delayed his plans but also intensified his need for financial support as he transitioned to being the sole income provider. 

His commitment to the project and the delays caused by the relationship breakdown drove him to conduct thorough market research and secure preliminary agreements with commercial buyers, setting a foundation for future success. This research emphasised for the borrower that he would need upfront financial support to get the most out of his and to be able to set up all the diversification plans he was considering. 

By being forward thinking and completely extensive research the borrower was able to provide a detailed business plan and also show clear analysis of why he would need funds, how much he would need and where he would use it.

UK Agricultural Finance’s Support in Diversification 

The borrower struggled to obtain finance from traditional lenders, this was in part due to his lack of experience running the types of businesses he was looking to set up for example accommodation. However, high street lenders also struggled to fairly evaluate his income level due to the mixed income streams and combination of multiple ventures. 

Facing a complex case with potential roadblocks from traditional lenders, UK Agricultural Finance stepped in with its signature personalised approach to provide crucial support. Despite the borrower’s challenges, including the recent breakup and limited experience in new ventures, UK Agricultural Finance recognised his proven business acumen from running a successful tree surgery business. 

BDM Sue’s on-site visit to the property allowed her to assess the thorough research and dedication the borrower had invested into diversifying his farm. We were able to support a loan of approximately £120k (just above our minimum) with a higher LTV, comfortably within our risk threshold, demonstrating our commitment to facilitating diverse agricultural projects through farm diversification loans.

Diversifying the Small Farm: A Strategic Approach with Agricultural Finance

The borrower wanted to ensure they were getting the most out of his small farm. This included a wide range of diversification projects to create multiple income streams, some of which were seasonal. Although there were other smaller projects, the main four areas of diversification included pasture poultry, craft beer, a glamping and wedding venue, and property redevelopment. 

1. Poultry Expansion and Pasture Management:
   • The borrower had laid out plans to significantly expand his poultry business by introducing pasture-raised chickens and seasonal turkey farming. Utilising an existing steel-framed barn, the setup would be segmented to accommodate storage for his tree surgery business alongside a controlled environment for raising the chicks prior to moving them outside. This initiative included installing solar-powered heat lamps and designing a sanitation-compliant area for on-site slaughter to maintain high welfare standards. The plan extended to selling high-quality poultry directly to local businesses and households, enhancing farm income with a sustainable practice.
2. Craft Brewery Initiative:
   • Leveraging the farm’s natural spring water, the borrower aimed to establish a small-scale craft brewery. The business plan was well-researched, targeting a niche market for robust beers. Initial distribution channels included local pubs and potential integration with planned wedding events on the farm, ensuring a diversified revenue stream. The strategic use of farm resources and local connections underpinned the viability of this venture, offering a unique product that complemented other farm activities.
3. Wedding Venue and Glamping Site:
   • With permissions for limited annual weddings, the borrower planned to use the farm’s scenic landscapes to host weddings, complete with facilities for glamping. This plan capitalised on the farm’s aesthetics, offering an eco-friendly tourism experience. The proximity to local attractions and natural trails added to the allure, promising a steady stream of revenue through event hosting and glamping, especially during the peak tourist seasons.
4. Property Conversion under Class Q:
   • The potential conversion of old steel-frame barns into residential or holiday let properties represented a significant opportunity. With plans to seek Class Q planning permission, the borrower could transform these structures into high-value assets. Whether sold or rented, these properties could generate substantial income, with the alternative option of selling unconverted or renting for consistent weekly income.

Each venture not only diversifies the farm’s income sources but also interlinks to support a sustainable business model that leverages the unique aspects of the property and the borrower’s entrepreneurial spirit. These diversification projects also take into account seasonality, with the turkey income being realised around Christmas when the glamping site is unlikely to be generating income and vice versa with the summer income from weddings. These efforts are supported by tailored farm diversification loans from UK Agricultural Finance, enabling the borrower to actualize these plans with financial backing that understands the nuances of agricultural diversification.

Exit and Expansion: Crafting a Sustainable Repayment Plan

The borrower’s well-structured repayment plan leans heavily on income from both his established tree surgery business and the emerging diversification ventures, ensuring a robust financial base. These diversified income streams are crucial, with the tree business alone capable of covering the loan repayments. As the new ventures mature – such as the poultry operation and potential craft brewery – the borrower may explore refinancing options, though the need to do so is expected to be minimal.

Additionally, the borrower holds valuable assets, including convertible barns, which could be developed and sold if necessary, providing a significant exit strategy. This approach not only secures the loan but also enhances the property’s value and income potential.

UK Agricultural Finance champions these transformative projects, demonstrating how agricultural property loans can revitalise and diversify farms. Farmers considering similar paths are encouraged to reach out to explore bespoke financial solutions that cater specifically to their needs, ensuring their farming future is both profitable and sustainable.

Broker Insights: Navigating Financial Solutions for Small vs. Large Scale Farms

Understanding the distinct financial needs of small-scale versus large farms is crucial for brokers. Small-scale lifestyle farms, like the borrower’s, often diversify income through auxiliary businesses, making them unique in their financial needs and more complex in assessment compared to larger farms. Traditional lenders might shy away due to perceived risks or the unconventional nature of their income streams, viewing these farms as too niche or not fitting standard criteria.

For brokers, this presents a challenge: finding a lender like UK Agricultural Finance that appreciates the nuances of diversified, smaller agricultural ventures and offers flexibility not typically available from mainstream banks. These farms require bespoke financial strategies that support not just the agricultural activities but also the supplementary businesses that bolster their revenue, making expert lenders invaluable for brokers aiming to serve this growing market segment effectively.