Do You Need Agricultural Finance?


The implications for British agriculture of the referendum decision on the 23rd of June 2016 to leave the European Union (EU) are not yet at all clear. Some of the issues surrounding the possible impact are considered in a paper by the Centre for Rural Economy at the University of Newcastle.

Although the UK is currently a net importer of food, the changed economic regime might encourage an increased importance in local farming production and the expansion of existing agriculture.

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Joining the expansion

If this is the case, are you ready and able to expand your own farming business or to invest in its current form in order to meet whatever new challenges Brexit may bring?

The answer to that question might depend on the availability of the plant, equipment, machinery and distributive resources at your disposal. In agricultural circles, these are by no means cheap or economical assets to acquire.

That in turn begs the question of whether you have access to sufficient agricultural finance to invest in the plant and machinery you need.

Agricultural finance

With the help of an independent finance broker specialising in the provision of funding for agriculture, you might want to consider some of the following options:

Business loans

  • Traditionally, the bank with whom you have been doing business – often for quite a number of years – has been the one to advance these.
  • since the financial crisis of 2008, and given the uncertainty of the economic climate for British agriculture in the years ahead, however, you may find bank loans more difficult to secure – and when and if you do, find that they come with a relatively high rate of interest attached;

Hire purchase

  • an equally traditional route to the purchase of major items such as farm equipment and machinery is hire purchase;
  • once you have put down a deposit – typically around 10% of the purchase price, you may make the purchase on credit by paying equal monthly installments until the full balance is paid;
  • Although you’ve signed a contract to buy the machinery or equipment, you don’t become the actual owner until you’ve paid the full balance. Should you default on the repayments, the hire purchase company holds the right to repossess the involved item or items.

Finance lease

  • just as the term suggests, this arrangement allows you to lease the machinery or equipment, rather than actually owning it – although you do gain exclusive rights to use them;
  • because you are leasing rather than buying on credit, the monthly lease payments may be lower than you pay on a business loan or hire purchase – although the lease agreement is typically long-term in its cover of the effective working life of the plant or machinery;
  • At the end of the lease agreement, you simply return the equipment or machinery to the owner, regardless of any residual value. You typically incorporate your acquisition of a financial lease into the balance sheet of your accounts.

Operating lease

  • this is an even more straight forward form of leasing agreement – and one that usually appears in the statement of profit and loss of your accounts;
  • Typically, the term of the agreement is much shorter – no more than one to five years. At the end of the agreement, the plant or machinery is returned to the owners. This means the plant or machinery stays in the possession of the lessee for a brief period, after which the owners regain possession.
  • you might then enter a succession of new operating leases to ensure that the machinery you are using is always new or nearly new.

The type of agricultural finance suitable for your own farming business of course depends on your particular, individual needs and requirements, together with any expansion you may be planning.