New Entrants to Farming – ‘Asset Finance: Choosing the right option for you’ – Event Summary

FAS meeting held in Dumfries on 3rd October 2017 

Guest speaker Donald Stewart (Farming & Industrial Finance) delivered a presentation on the finance market and the numerous different options that are available for accessing funding. Following the presentation, there was a good discussion involving a number of scenarios that New Entrants might find themselves in. Donald recommended that in many cases a blend of different financing products was the most suitable option.

Michael Halliday (SAC Consulting) delivered a brief presentation of the main grants available for New Entrants:

• New Entrant Start-Up grant
• Young Farmer Start-Up grant 
• New Entrant Capital grant.

After this, there was a good discussion on the type of “bridging loan” to look at should grant funding be made available to any new entrant.

A copy of the presentation slides from both Donald and Michael are available to view here.

Key Messages

1. Lending in Agriculture is current at the highest level since records began: £2.3bn in loans & £1.1bn in H/P and other sources. This is due to a sustained period of very low interest rates (Base Rate: 0.25%); Agriculture is viewed as a safe & secure sector by lenders; it’s been a good time to consider new projects and / or a chance to restructure existing arrangements.
2. Long term debt held as an overdraft is an expensive way to fund borrowing due to annual arrangement fees (normally a % of the borrowing). Alternatives, such as term loans, should be considered.
3. Hire Purchase is a good way to purchase machinery. Normally a deposit (typically 10%) plus VAT is paid up front and the balance is paid over 5 years. This provides benefits to the purchaser as no additional security charge over the business is required (funderuses asset being purchased as security). It helps with cash flow as machine is paid over a long period.
4. Term Loans have a one-off arrangement fee and can be set up with fixed or variable rates of interest. It can be a good idea to have a proportion of debt at a fixed rate and the balance at a variable rate. There is also Interest Only term loans – but remember at the end of the loan, the orginal capital has to be paid.
5. One size does not fit all; your finance needs are likely to be a mix of different facilities; regular reviews recommended- your business and the options available are constantly changing; new entrants should keep an eye on their credit rating – it will affect their ability to borrow.