How Restructuring Finance Allowed this Arable Farm to Access New Opportunities 

We often find when our BDMs meet with borrowers, they have already been told no by multiple high street banks. This can be hugely frustrating and demoralising for the borrower. In the case of recovery and restructuring finance, this is particularly true. Many of the borrowers we help in these situations have had long relationships with their high street banks, but despite this, they are put under huge pressure to refinance their loans when the goals of that bank change. 

Why was the borrower in need of restructuring finance? 

Our Central BDM, Sue, had a case last year that perfectly illustrated the situation many farmers face. This borrower had a significant amount of debt that they had been working to reduce but, following a recent sale of some land to further reduce the debt, the bank had decided they wanted the whole debt to be cleared or refinanced promptly. Yet, the borrower also needed working capital to further develop new opportunities that would significantly improve her business performance. 

What was the background of the borrower? 

The borrower had farmed the mostly arable land for all her life and had taken over ownership of the land when her father passed away. Since then,, the borrower had been working to reduce her debt by selling off small parcels of land and buildings. This included selling off plots for residential purposes as well as agricultural land. The land she had remaining was broken into 5 parcels which totalled just under 140 acres. 

The borrower predominantly farmed the land as arable, including winter barley and other cereal crops. She also had a small beef income from rearing a small group of calves. Off-farm, the borrower had a contracting business supporting around 10 local farms with services including fencing, groundworks and rolling. 

However, the income from these activities had not been as successful recently and her affordability for the loan was a concern, which is likely the issue that led to the bank seeking repayment. 

But there were also positive signs: when Sue visited the borrower at the property, the borrower explained that she had been generating an extra income from storage. In late 2021, the borrower made a verbal agreement with a large rice importer to store their rice in her grain stores. 

During the site visit, the borrower showed Sue the 2 stores that were around 60% full of bags of broken brown rice, which are sold to pet food producers. The borrower explained to Sue that the initial expectations were that an income of around £1000 per month would be achieved; however, this has grown month on month, and she hoped to earn £30k per year moving forward. This additional income would significantly improve the business performance and her loan affordability. 

As it stood, the arable land and the yard where the grain storage barns were located were accessed by a drive owned by a neighbouring property. Although there was an agreement in place to use the driveway for access, it was a concern for the borrower, particularly if the large rice importer contract continued to increase. Therefore, the borrower was looking for additional finance to improve the access and add a new driveway that would be owned by her. 

How did we approach this restructuring finance differently? 

To both refinance the existing debt and gain enough working capital to improve the business, they needed to borrow in the region of £300,000. 

The team at UK Agricultural Finance recognised the concerns regarding affordability but also saw that without the chance to refinance the existing loan and access capital for the new driveway, the borrower would be out of options to restructure her farm for the future. The team also recognised that the borrower had been working hard to reduce her debt for a number of years and was not in any way living extravagantly or beyond her means. 

As such, the team all worked together to find a solution for this borrower. This included planning multiple potential exit strategies and helping the borrower with access advisors to discuss these options. 

On this occasion, we were able to offer the borrower a lifeline using our high-quality bridging facility, which included rolled-up interest to offer the borrower some breathing space to make the business changes they needed. 

Although there are a variety of exit options, the most favourable option for the borrower was to sell off another small piece of land which they believed they could get planning permission on. If this was successful and the new income continued to support the performance of the farm business, then the borrower would be in a position to reduce her debt enough for it to be considered affordable ongoing. 

Alternatively, there is also a disused farmhouse which could be sold for redevelopment. In an ideal scenario, the borrower would like to be able to redevelop this themselves to either rent out or sell at a later date,though they are aware this is not at option at present due to her current financial situation and indebtedness. 

If none of the above options for exit are successful, the final option would be to sell some of the main arable land, which is of good quality and would be attractive to local farmers. This is the least preferred option but would still provide a suitable exit if required.