Restructuring Finance for a family-owned agricultural business

At UK Agricultural Finance, we understand that there are times when agricultural businesses need to be restructured. This could be due to a change in circumstances, the addition of new business ventures, a change in industry conditions or a shift in the family dynamic. Whatever the reason, restructuring can often lead to an improvement in the business efficiency and profitability. It can also facilitate accessing new opportunities that may provide long-term growth for the agricultural business. However, restructuring also often requires investment or additional working capital, which is where we can help by providing restructuring finance.

We have provided restructuring finance for many agricultural businesses for a variety of reasons. A common reason is for either diversification investment or to meet changing industry conditions, as was the case when our Northeast team was approached by a broker with two farming brothers in need of restructuring finance.

What was the situation of the borrowers?

The two brothers jointly owned a farm consisting of 350 acres of arable hill land. The property also included a telephone mast and two rental cottages with sitting tenants. Additionally, the brothers rented a further 750 acres on a long-term agricultural lease for arable use. They farmed this land successfully to provide a good income, but this was not enough for these entrepreneurial farmers. The brothers also ran a successful haulage business alongside their farming activities.

As you can see, there were multiple income streams in play and a range of business functions, all of which required their own consideration. Unfortunately, the brothers      ended up with a rather inexperienced relationship manager at their local high street bank. The inexperienced relationship manager failed to understand the various income streams and business functions, which led to them putting a much lower value on the overall business than was justified.

The situation worsened considerably when the brothers won a new haulage contract that would have a significant impact on the cash flow patterns. The brothers attempted to discuss this with the inexperienced relationship manager, but they were unwilling to take the time to understand the new contract and the impact on the cash flow for the business.

Eventually, the brothers became so frustrated they decided they needed to leave the high street bank. However, this required a 6.5% fee to get out of all their existing arrangements. They were so annoyed with the whole process that they were willing to pay this fee simply to be able to leave and find a more suitable solution for their needs.

What was the restructuring finance for?

Firstly, the brothers need to free up additional working capital to pay the 6.5% fee from the high street bank. Secondly, they used the restructuring finance as additional capital to facilitate the new cash flow changes and overall restructure of the business functions.

As their cash flow patterns were changing, they needed extra working capital to ensure there were sufficient funds during the changeover period. They required a loan of around £590,000, with security provided against their hill farm, the rental cottages and the phone mast. The loan was considered low risk as it had a low LTV of just 23% and was supported by a well-established and successful group of income streams. On this occasion, we provided a high-quality bridging loan that allowed the brothers to restructure and then move back to a high street bank once their cash flow patterns had stabilised.

The exit strategy for this restructuring finance included a partial repayment through the sale of a land option to a national housebuilder, followed by an exit to the high street once their accounts showed a stable business pattern.

Why was UK Agricultural Finance chosen to help these borrowers?

Our expertise in the agricultural sector meant we were able to fully understand the changing needs of the business. At a principal lender, we also have the flexibility to consider loans on a case-specific basis rather than simply trying to tick boxes. For example, we were happy to take all the income streams into consideration when reviewing the risk of the loan, which enabled us to understand the low LTV the brothers needed.

We were also prepared to assess the new contract and its impact on the cash flow of the business and could see the opportunity for growth presented by the new contract the brothers had secured.

When COVID struck, the haulage business had to be temporarily closed due to the lockdown, but our understanding of the wider business and additional income streams from rental properties and the farm meant we were able to work with the brothers to create a solution. In this case, we were able to offer a loan extension and a further advance, which gave the brothers the breathing room they needed to restructure the business following the lockdown.

Throughout the process, the two brothers consistently provided good communication, which meant that our team could work to support them wherever possible and in a timely manner.

Because our team took the time to understand the specific situation of the borrowers, we were able to see that the brothers were two successful and hard-working farmers, who were entrepreneurial and motivated to make the farm succeed. This helped us to understand what high-quality borrowers they were.

If you are a broker who has an agricultural client looking for restructuring finance or in need of working capital, we are here to help. Get in touch with our team to find out how