Loaning to new entrants: an agricultural loan for farm diversification
Over 2/3 of farmers have now completed some form of farm diversification, and many farmers now feel diversification is a necessity to maintain the financial viability of their farms. Farm diversification often requires some upfront investment, and this is where an agricultural loan from us can give new diversification ventures the boost they need.
Farm diversification often can take many forms, from glamping sites to renewables, and from alternative livestock to commercial storage. You may not initially recognise a diversification project as a suitable application for UK Agricultural Finance, but as long as the operation is taking place on farmland, we are more than happy to consider if the application is suitable for us.
One area where we can be of particular help is for new entrant farmers. These are people who are buying their first farm, either for a lifestyle change or because they are moving from working in agricultural to owning their own land.
Why are new entrant farmers an ideal agricultural loan case for us?
New entrant farmers are often unable to access loans from traditional lenders if they are unable to prove their experience in the farming sector. This was the situation for one of our recent agricultural loan cases.
The borrowers required a little over £1 million in funds to purchase and diversify a beef farm. The borrowers had owned and ran care businesses for many years, so they had clear business sense and experience. However, neither had run a farm before, and therefore traditional lenders such as high street banks had refused their applications.
This was compounded by a lack of historical financials on the existing farm business, due to it being a “distressed sale”. The previous owners were only selling the farm as they were forced to do so as part of their divorce. Due to this, the borrowers could only provide projections for future income, which limited their choice of lender.
What farm diversification was the agricultural loan used for?
The borrowers wanted to diversify the farm from an underdeveloped beef livestock farm to a fully diversified farm enterprise with various income streams. The borrowers planned to move from beef production to an alternative and profitable livestock option: venison. Venison farming is growing in popularity as more people wish to consume it, both for its taste and its lean protein credentials.
They also planned to add income from caravan storage and the redevelopment of residential properties on the farm. Finally, they would also generate income from the established woodland through timber production, alongside renting out some areas.
This plan showed a clearly diversified business which offered a range of income streams to reduce the risk of overreliance on one income source.
What did UK Agricultural Finance see that others didn’t?
The borrowers had clear business acumen, and a strong background in building and running successful businesses. They also demonstrated they were aware of the need to seek professional guidance when moving into a new business sector, as they sought commercial advice in the setting up and running of a venison farm and other farm diversification projects. Based on this advice and their own business experience, the borrowers had a clear plan on how they were going to turn the farm around and presented a well-reasoned business plan with realistic financial projections.
The borrowers would continue to generate income from their care business when moving to the farm property. They also had additional established income streams from their rental property portfolio.
Our experience in the agricultural sector also allowed us to evaluate the likely success of their business plan in the context of other projects we have been involved in.
What is the expected exit strategy of this agricultural loan?
The borrowers intend to refinance their loan back to the high street once they have successfully transitioned the farm from beef to venison. During this period, they will also set up the other farm diversification projects so that, when refinancing, they will have several years of accounts and financials to support their application.
The high street will require they prove their business strategy before accepting a refinancing application, and therefore we offered them a term period of 5 years to allow them time to ensure the business was well established before refinancing.
This agricultural loan offered benefits to the borrowers and beyond
The borrowers had made the decision to move into farming as they wanted to create a small country estate where they could have their family close by. As part of the redevelopment plans for the farm, the borrowers
wanted to create residential dwellings for their family and build a farm business that would support them throughout their retirement.
The farm was in need of redevelopment and the agricultural loan allowed the borrowers to restore and redevelop the farm into a thriving country estate. The local area also benefited from this, both through the reinvigoration of the estate and the provision of employment and local trade work that helped to support the local community.
If you are speaking to borrowers considering purchasing a country estate or farm business as part of a lifestyle change, get in touch to find out if we can help.