Whether you own a plot of agricultural land or already run an established farm, you’ll likely need cash to fund any expansion plans. Whether you need an injection of cash to invest in livestock or you’d like to invest in a pricey piece of machinery, a farm loan or agriculture finance can help.

In this article, we explore the key finance options available for farmers, from loans to asset finance, including pros, cons and key suitability considerations.

What is agricultural finance and credit?

The farming and agriculture sector is unpredictable, 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 businesses in the sector and the challenges farmers face.

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

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What are the advantages of agricultural finance?

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

The main benefits of using agriculture include:

• Fast access to crucial capital – gaining available working capital to purchase various resources for planting, irrigation and harvesting needs. 
• Ability to upgrade assets and technology – investing in the latest technology and replacing old machinery can help you boost productivity.
• Supporting expansion plans – agricultural finance gives farmers room to manoeuvre and scope to expand operations, diversify and acquire land.
• Mitigate industry risks – farm loans can help businesses in the sector deal with changing conditions and cover unexpected expenses and rising costs.

Seasonal repayment options in farming loans

Farmers will be happy to know they can enjoy seasonal payment options from various farming loan providers. Many high-street banks and dedicated agriculture finance companies offer flexible options to account for seasonal impact, such as:

• Lump-sum repayments after harvest or key sale periods.
• Interest-only payments during the farming off-season.
• Custom repayment schedules aligned with farmers’ cash flow, including harvest times and livestock sales.

These seasonal finance solutions support farming businesses when they need it most, reducing pressure during slow months and addressing cash flow problems.
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Common use cases for agricultural finance

Using farm loans and forms of agricultural finance enables businesses in the sector to invest in various areas and improve operational efficiency. 

Here are some of the main use cases to help you understand the scope of agricultural finance:

• Land purchases: Farm loans enable businesses to buy additional land, which helps to expand operations.
• Livestock investment: Access to additional funds in key periods allows you to buy animals and meet market demand without straining your cash flow.
• Recovery and restructuring: Financial support during poor harvests or after any setbacks can give you breathing space to reset and adjust plans.
• Renewable energy projects: Loans can allow you to invest in various renewable energy opportunities, such as solar, wind or biogas, to create new income streams.
• Business diversification: Fund the purchase of new crops, equipment and ventures to diversify, reduce risk and boost your business resilience.
• Property development: Use an injection of funds to expand existing farm buildings and improve infrastructure to increase business value and efficiency.

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What is the interest rate for farm loans and financing options?

Interest rates for farm loans can vary depending on the lender, type of loan, market conditions and your creditworthiness. For example, with a secured business loan, you can expect lower interest rates and more favourable terms, due to reduced risks. This means using business assets as collateral to secure the loan, such as livestock, machinery or property. 

Another way to reduce interest payments and improve the total cost of borrowing is with a lender that offers flexible options, like iwoca, which allows you to repay the loan early without charge and only pay interest on the funds you draw down.

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​​What are the main types of agricultural finance?

Agricultural finance consists of various financial products that help meet the diverse requirements of farmers and businesses in the farming industry.

Here are the main types of agricultural finance you can explore:

Asset finance in agriculture

The main ways to use asset finance in farming are to hire or lease new business assets, or to refinance existing assets to fund upgrades or release equity for other areas in need of funding. 

New assets, such as vehicles, buildings or farming equipment, so asset finance saves you from eating into savings or working capital (that impacts the day-to-day running of your business), enabling you to spread the cost over a longer period.

Refinancing existing assets is another option. You can unlock value from these assets for other purposes, with lenders leasing them back to you, or use the released equity for new asset purchases. 

What are the main forms of asset finance to choose from?

If using agricultural asset finance to fund farming equipment, vehicles or other assets, you can choose from the following types of agreement:

• Hire purchase: This involves hiring assets over an agreed period after which you have the option to purchase it, usually through a final balloon payment.
• Operating lease: A leasing company allows your business to hire assets/equipment whilst retaining ownership and handling depreciation, so the business taking out the lease bears less risk of the assets’ residual value. 
• Lease finance: While this asset finance agreement doesn’t have an option to own the asset, at the end of the contract, you can sell it on behalf of the leasing company at the reduced value or extend the lease at a lower rate.
• Contract hire: This is similar to an operating lease. The provider retains ownership and handles most maintenance and servicing costs, and at the end of the term, equipment is simply returned, but farmers can upgrade to newer models of machinery or vehicles.

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Can you defer VAT for new farming assets?

In some cases, you can defer VAT payments when using asset finance agreements to acquire new farming assets, so long as you’re VAT-registered and the assets are primarily for business use. However, it depends on the type of agreement you use. 

Most asset finance agreements see farming businesses paying VAT monthly, with the ability to reclaim on each payment, while others require VAT to be paid upfront on the whole purchase price. Some agricultural finance companies give you an option to defer payments for several months to ease cash flow out of peak farming seasons.

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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, there are various agriculture finance brokers and business lenders that offer mortgages and loans for the farming sector, accommodating farmers and landowners who are looking to expand.

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 most other types of loans, making them an accessible option for farmers looking to invest in their property.

What about farm leasing options?

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.

Chattel mortgages – what are they?

A chattel mortgage is a type of loan for acquiring movable assets (known as chattels)  rather than real estate, in which the assets are used as security. In farming, this could be for tractors, farm machinery or other equipment, and is for purchasing assets, rather than hiring or leasing. 

Repayments are usually flexible and aligned with key agricultural seasons, whilst farmers can often enjoy lower interest and VAT rates and other benefits. 

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Flexible small business loans for farming

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 assets like farm equipment, livestock or property as collateral, or unsecured loans, which don’t require collateral, making them accessible to farmers without a lot of existing, valuable assets to pledge. 

While secured loans tend to offer lower interest rates due to the reduced lender risk, they’re more suitable for larger, long-term funding needs and farming businesses with valuable assets to use as security. Unsecured loans are ideal for short-term funding needs with added flexibility and can be approved quickly.

Growing your farming business with iwoca Flexi-Loans

iwoca’s Flexi-Loan solutions are unsecured business loans (from £1,000 to £1 million) tailored to your needs and aligned with your cash flow. You can be approved in under 24 hours, with successful applicants accessing funds in a matter of hours. 

Learn more about how to apply for our flexible business loans and how we can help your farming business grow.