Farm loans and agricultural finance

Whether you own a plot of agricultural land or already run an established farm, it’s likely that you’ll need cash to fund any plans for expansion.

That’s where finance can help. But with a range of farm loans and agricultural finance options available, it can be tricky working out where to turn when it comes to acquiring money for the growth of your business.

Perhaps you need an extra reserve of cash to invest in livestock, or would like to invest in a pricey piece of machinery that could revolutionise the way you use your land. Whatever you need finance for, there are a variety of alternative business funding options to suit your business. Here we’ll explore the finance options available for farmers, from loans to asset finance.

What is agricultural finance and credit?

Farming and agriculture is an unpredictable business, with yields and returns at the mercy of the weather, fluctuating feed and material prices as well as changing market conditions for agricultural products. Agricultural finance and credit covers a range of financial products and services designed to meet the needs of farmers and agricultural businesses to support them through these challenges.

This type of finance can support various aspects of farming operations, from purchasing equipment and livestock to managing cash flow and expanding farm properties.

What are the advantages of agricultural finance?

Agricultural finance offers farmers and agricultural businesses the ability to manage cash flow and invest in new projects to keep up with changes in the market, ensuring they can remain competitive and solvent.

Purchase of Land

Land is, of course, a key asset for farmers, but in the UK, it can come at a premium. It’s not uncommon for additional acreage or a unique property opportunity to become available at any time, often with little notice. In this instance, a farmer may not have long to secure the capital required to purchase.

Agricultural finance, such as a short term loan, can help provide quick access to capital to secure new land to expand your farming operations and increase your production capacity long-term.

Livestock Finance

Investing in livestock is an important consideration for many farmers. To make the most of market demand, increase production and ensure the continued genetic health of your livestock, it’s vital to have the cash to buy animals when you need them.

However, livestock isn’t cheap. Whether you’re farming chickens, sheep, pigs or cows, the costs associated with acquiring new animals can quickly run into the thousands. Not all farmers have money spare to acquire new livestock when they need it. As such, many hold off on investing in livestock and other assets, potentially to the detriment of their business.

Finance can provide a lifeline, freeing up cash flow in other areas of your business and allowing you to make quick decisions. By taking out a small business loan with a low interest rate, you can invest in the livestock you need to capitalise on customer demand without paying over the odds for the finance you require.

An unsecured loan also removes the need for assets to use as security. If you can demonstrate a reliable trading history, it can be a simple way to acquire finance for investing in livestock.‍

Recovery & Restructure

Farming is unpredictable, with seasonal weather events or disease a constant risk for agricultural businesses. When nature doesn’t go your way, financial pressures can quickly arise, say, when a harvest comes off below expectations. 

Agricultural finance can help you cope with these demands, allowing you to replan and reinvest in more resistant crops or new equipment to continue your operations and protect your revenue.

Renewable Energy

For farmers looking to generate additional income, investing in renewable energy projects can transform under-utilised land into valuable assets. 

By financing these projects, you can create new revenue streams and add value to your farm. This can include installing solar panels, wind turbines, or converting waste products into energy, all of which contribute to sustainable farming practices.

Business Diversification

Focusing on a small range of crops or livestock can leave your business vulnerable to specific diseases, changes in market demand or pressure from buyers.

Agricultural finance can support the addition of new areas in your business, whether you're looking to start a new venture, diversify planting or enhance existing operations with modern equipment. 

Property and Asset Development

Making the most of your property can involve development, renovation, or repairs. Agricultural finance provides the funds necessary to improve your farm buildings and infrastructure, leading to increased property value and potential income generation. Whether it's building new barns, updating existing structures, or enhancing your overall farm layout, proper financing can help you keep your infrastructure in top condition to keep your business running smoothly.

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​​What are the Types of Agricultural Finance?

Agricultural finance encompasses various financial products tailored to meet the diverse needs of farmers and agricultural businesses. Understanding the different types can help you choose the right option for your specific requirements. Here are the main types of agricultural finance available:

Small Business Loans

Small business farm loans are designed to support the everyday operations and growth of small farms. These loans can be used for purchasing supplies, covering operational costs, and investing in small-scale improvements.

These can be secured loans, which use collateral, such as farm equipment, livestock, or property. This type of loan typically offers lower interest rates due to the reduced risk for the lender. Generally, secured loans are suitable for larger investments where you have valuable assets to use as security.

Unsecured loans do not require collateral, making them accessible to farmers who may not have significant assets to pledge. These loans are ideal for smaller, short-term needs and can be approved quickly – iwoca’s Flexi-loan offers approvals in under 24 hours.

Asset finance in agriculture

There are two broad categories to consider when it comes to asset finance. One involves taking out a loan to fund new assets, while the other uses existing assets as security to borrow cash for other areas of your business.

The former option (sometimes referred to as equipment finance) can be a good option for farmers looking to add new assets to their business, such as vehicles, buildings or equipment. These are expensive items to fund with savings, and doing so could prevent you from using working capital in the day-to-day running of your business, cause cash flow problems and put the financial health of your operation at stake. Taking out an agriculture loan with a low interest rate could be a more manageable way to acquire the assets you need.

Refinancing an existing asset is the other option, particularly if you already have valuable items in your business that can be used as security for a loan. Again, these assets could include things like farm vehicles, harvesting equipment or even buildings. Indeed, almost anything of value can be used as security, as long as it is considered removable or re-usable by the firm using it as security against the loan.

Agricultural Loans for Land and Farms

If you’re seeking finance to buy agricultural land or farm buildings, you might consider taking out an agricultural mortgage.

Mainstream banks and building societies might be the typical choice for a mortgage on a house or conventional business premises, but for farmers finance can be trickier to acquire. Luckily, a number of lenders specialise in providing mortgages and loans for the agriculture sector, accommodating farmers and land owners who are looking to expand.

Leasing farm buildings such as sheds, barns, shelters and silos can also be an attractive option for some farmers. A lease with the option to purchase the building at the end of the contract can be a flexible way for farmers to spread the cost of an expensive asset, without losing out on the new business opportunities that the investment might present.

Agricultural finance and farm loan FAQs

What is a farm ownership loan?

A farm ownership loan is a type of financing designed to help farmers purchase, expand, or improve agricultural land and farm buildings. These loans can be used for buying new farmland, constructing or renovating farm structures, and implementing conservation practices. Farm ownership loans typically offer longer repayment terms and lower interest rates compared to other types of loans, making them an accessible option for farmers looking to invest in their property.

What is the interest rate for farm loans?

The interest rate for farm loans can vary widely based on several factors, including the type of loan, the lender, the borrower's creditworthiness, and current market conditions. Farmers can reduce the cost of their loan by offering collateral, for a secured loan, using their assets or livestock. Another way to reduce the cost of interest payments is to look for a lender than offers early repayment without additional fees, such as iwoca. By repaying early, you can reduce the interest period and the total cost of borrowing.

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