Agricultural Mortgages: Farm loans, financing and alternatives

Running a farm comes with unique financial challenges, from the changing seasons to expensive equipment and livestock. Agricultural mortgages and loans help farmers invest in their premises and operations while managing cash flow, including purchasing more land, upgrading machinery or building new facilities. 

We discuss the benefits of agricultural mortgages and other farming finance facilities, how they work and alternative short-term finance options, such as lines of credit or flexible business loans. 

What is an agricultural mortgage?

An agricultural mortgage is a loan specifically designed for farmers and agricultural businesses, helping them fund land purchases, property improvements or business expansions. 

Unlike standard commercial mortgages and business loans, agricultural finance is specifically for rural funding needs, helping farmers finance their land, buildings and other essential requirements, often with repayment terms that align with seasonal cash flow. There are specialist lenders in the UK that provide agricultural mortgages and farm loans, such as Rural Asset Finance, Oxbury Bank and the Agricultural Mortgage Corporation (AMC).

How do agricultural mortgages work?

Agricultural mortgages are typically secured against agricultural land or farm buildings, providing long-term, stable financing options to support the rural economy​​.

For farming businesses that require large capital investments, an agricultural mortgage allows you to borrow over an extended period, from 1 to 25 years (and in some cases, as long as 40 years). Plus, mortgage providers for the farming sector ensure repayments are manageable and tailored to your income cycle​.

An agricultural mortgage differs slightly from a standard commercial mortgage. As farming business income is typically seasonal, the mortgages require greater flexibility, and property needs often consist of significantly more land and other unique premises and legal challenges. As a result, specialist lenders can arrange annual or quarterly repayments, varied security options and other flexible conditions.

What about agricultural mortgages in Scotland?

When it comes to agricultural mortgages in Scotland, consider Scottish land ownership structures and agricultural tenancy laws, which affect valuation, borrowing capacity and how land can be used as security, making the mortgage process slightly more complex and time-consuming. However, due to Scotland’s unique property buying/selling process, you legally secure property purchases earlier, which reduces the risk of sales falling through. 

Explore our dedicated articles on Scottish business loans and how to get a bridging loan in Scotland for property purchases.

Agricultural mortgage rates

Agricultural land and property loans also often come with slightly higher or more variable interest rates compared with standard commercial mortgages, due to the complexities involved and increased flexibility offered.

You can expect agricultural mortgage rates to be between 6 and 8%, but the rate you get will depend on the lender and various factors, such as whether you choose a fixed or variable rate mortgage, your loan-to-value (LTV) ratio, credit score and flexibility level required. 

What are agricultural mortgages for?

Agricultural mortgages provide funding for various large-scale commercial needs specific to farming and rural businesses, such as:

1. Buying farmland: If you’re looking to expand your farm or buy new land, an agricultural land mortgage provides the funding you need without large upfront costs.
2. Improving buildings: Maybe your barns, sheds or storage facilities need an upgrade, or you want to build something new. An agricultural mortgage can help you cover the costs.
3. Diversifying your business: Many farmers are turning to alternative revenue streams like agritourism (glamping, farm stays, weddings, etc.) or renewable energy projects (such as solar panels and wind turbines). You can use a specialist mortgage to help fund these projects​.
4. Releasing equity: If you already own your farmland or buildings, you can use a farming mortgage agreement to release equity and unlock value to invest in other areas of your business, such as buying new machinery or livestock​.

Overview of the main types of agricultural loans

While agricultural mortgages are one of the most common forms of finance in the farming sector, other types of agricultural loans offer flexibility depending on the business’s needs. 

Here are the main types of agricultural loans to consider:

Agricultural mortgages

Agricultural mortgages are long-term loans (usually from 1 to 25 years, but sometimes longer) secured against farmland or buildings. These loans are ideal for significant investments, like purchasing land or making large-scale improvements to farm infrastructure​.

Bridging loans

Bridging or commercial bridge loans are short-term finance solutions used to "bridge the gap" when immediate funding is needed. For example, if a farm wants to purchase land at auction but is waiting for longer-term financing, a bridging loan can provide the funds required to complete the transaction quickly​.

Agricultural equipment finance

Using agricultural equipment finance helps farmers invest in essential machinery, like tractors, combine harvesters or irrigation systems. Also known as asset finance, it allows farming businesses to purchase equipment without a huge upfront outlay, spreading costs over time with repayments, preserving working capital​.

There are several forms of equipment finance, including hire purchase, contract hire and lease finance agreements, which offer different benefits and conditions for varying needs and preferences. With a hire purchase, you can make a balloon payment at the end of the term to buy the asset/s outright, whereas some solutions don’t have a purchase option, but instead you return or exchange equipment. 

Livestock finance

This type of loan is tailored for purchasing livestock. Farmers can use the loan to buy animals for breeding or production and repay the loan over time as their livestock generates income​.

Green and diversification funding in the farming sector

The UK farming sector is embracing green initiatives and diversifying in response to changing economic conditions, tax rules, subsidies and environmental targets. This has resulted in many farms broadening their offering, using more sustainable practices and investing in renewable energy, such as solar, wind and anaerobic digestion (for biogas).

To maintain stability and growth, farms are seeking additional revenue streams and utilising their land and buildings for things like:

• Glamping, unique holiday lets and other rural tourism initiatives
• Weddings, music and sports events and leisure facilities
• Farm shops, cafes and restaurants
• Wellness centres

There is both public and private funding supporting these trends and initiatives in farming and rewarding environmental improvements, including government schemes (SFI, Countryside Stewardship, etc.), capital grants and specialist lenders. Green investment funds and tax relief are available to ease the shift to renewables, regenerative processes and diversification ventures in farming. 

How to get an agricultural mortgage or loan

Securing an agricultural mortgage or loan requires preparation and a clear understanding of your financial needs. Here are the key steps to obtaining finance:

• Assess your funding needs: Before applying, it’s crucial to define exactly what you need funding for, whether it's purchasing land, expanding your farm, or buying new equipment. This will help you decide the right type of loan or mortgage for your business.
• Prepare your financial documents: Lenders will typically ask for:
  
  • Three years’ financial accounts: Including audited or certified accounts, which provide a clear picture of your farm’s profitability.
  • Your business plan: Particularly if you’re using the loan for expansion or diversification projects, lenders will want to see how you plan to use the funds and your expected return on investment.
  • Assets and liabilities: A statement showing what assets (like land, buildings, or equipment) you own, and what liabilities (such as outstanding loans or mortgages) you have​.
    
    
• Find the right lender: There are a range of options for sourcing financing for your farm, including high street banks, agricultural mortgage companies and alternative finance lenders. Some lenders offer dedicated agricultural relationship managers who understand the challenges farmers face, which can help simplify the application process​.
• Submit your application: Once your documents are ready, you can submit your application. Most agricultural mortgage applications take several weeks to process, especially as some lenders require an independent valuation of the land or buildings being used as collateral​.
• Agree on terms: Once approved, you’ll discuss repayment terms, including the length of the loan, whether you prefer fixed or variable interest rates, and whether you want flexible options like capital repayment holidays (where you only pay interest for a period)​.

Pros and cons of agricultural mortgages and land loans

Agricultural mortgages and loans offer many benefits but also come with potential downsides. Here’s a balanced look at the main pros and cons:

Advantages

• Long repayment terms: Agricultural mortgages offer extended repayment periods (up to 25 years), which align with the long-term nature of farming investments​.
• Flexible repayment options: You can often choose between monthly, quarterly or annual payments, making it easier to manage cash flow​.
• Unlock capital: If you already own farmland, you can use an agricultural mortgage to release equity and reinvest in your business​.
• Tailored for agriculture: Many lenders offer specialised support and understand the unique financial cycles of farming​.

Disadvantages

• Secured against assets: Agricultural land mortgages and property loans are often secured against land or buildings, meaning you could lose your premises if you fail to keep up with repayments​.
• Slow approval process: Agricultural mortgage applications can take several weeks to process, which may not suit situations where you need quick access to funds​.
• Potential for high-interest rates: If your farming company’s financial history isn’t strong or you don’t have sufficient collateral, lenders may offer higher interest rates, increasing the overall cost of the loan​​.

When to use an agricultural mortgage broker

Considering the unique nature of the farming sector, using agricultural mortgage specialists can help you secure agreements that are tailored to your needs or have flexibility that reflects the business and financial challenges you face. Specialists in the UK include R&BS, Finance for Agriculture and Evangate Financial Services.

If you’re looking to buy land or commercial property, refinance or kickstart diversification projects, an agricultural mortgage broker can be a valuable resource. They understand the industry, seasonal factors, risks and complex farming business structures, and can provide the following benefits:

• Assess your funding needs based on deep sector knowledge
• Offer helpful advice and guidance
• Identifying suitable lenders from their network
• Negotiate flexible terms and lower rates
• Help manage your mortgage or loan applications.

While agricultural mortgage brokers take a fee for their services, they can save you a lot of time and effort, increase your understanding of the landscape, help you avoid certain pitfalls and secure the best possible terms and deals for your specific needs. 

Finding alternative financing for your agricultural business 

For some agricultural finance needs, a mortgage might not be the best solution. If you’re after more flexible, short-term funding that can adapt to your farm’s needs and cash flow, you may be better off with a form of working capital loan. This can provide fast and flexible access to funds for a variety of operational needs, such as paying wages, buying feed or covering seasonal expenses. 

They can also be used to support your growth plans, including diversification and premises refurbs, helping you keep the business running smoothly during times when things are tight​ and make key investments when required.

Here are some common forms of working capital loans:

• Business line of credit: This is a revolving credit line that offers flexibility and cost efficiencies. You can draw from your credit limit as and when you need, only paying interest on the funds you draw down.
• Invoice finance: Rather than waiting for your clients to pay you (within their agreed period), you can use invoice finance providers to advance the vast majority of their value to unlock working capital. The remaining amount is transferred (minus the provider’s fees) once the client makes the payment. 
• Unsecured business loans: Unlike mortgages and secured loans, unsecured loans don’t require assets for collateral and enable faster access to funds, shorter-term debt and greater flexibility, with capital available for any business purpose. They come with slightly higher rates due to increased lender risk. 

Flexible business finance to fuel your farm’s growth

iwoca’s Flexi-Loans are unsecured loans designed to support SME growth and cash flow management. Your agricultural business can borrow up to £1 million for a period of days, weeks or months (up to 60 months), to suit different funding needs. You’ll enjoy flexible repayment terms, aligned with your cash flow, with options to repay the loan early, free of charge. 

For more immediate funding needs, you’ll be pleased to know that applications take just a matter of minutes, without the usual paperwork involved in mortgages and bank loans, and with less stringent eligibility requirements. 

Find out how to apply for a loan from iwoca and get a decision within 24 hours – successful applicants often access funds on the same day – or use our business loan calculator to discover your likely repayments.