Funding your crop farm
Smallholdings and farms are an essential part of the British economy. The ability to produce food is essential - Britain currently imports around 40% of the food we eat - and the importance of crop farming is likely to increase if Brexit changes the rules under which the food production industry operates.
This means that government subsidies can be made available for those who want to set up and operate a crop growing business. But despite these subsidies, farmers still face financial challenges. The cost of land is high, casual labour can be difficult to find, and the seasonal aspect of crop farming, with long periods of no income waiting for harvesting can cause major problems.
In this article, we'll look at the various ways to fund your business.
Whether you are thinking about setting up a farming operation or are already established, there may be grant money available.
“With a smallholding, you don’t think about getting a government grant. But the money is there if you go after it - and you can’t afford not to look at it.”
Many smallholders miss out on this type of funding and believe that the whole system is for much bigger farms with hundreds of acres. They feel grants and subsidies are just not for them; the paperwork is too complicated, the rules are too limiting. However, with the declining numbers and the increasing average age of British farmers, there are schemes throughout the UK to promote new entrants into farming. If you are starting a smallholding it may well be worth checking if you are eligible.
“You can’t run a successful farm business on a shoestring. There are costs to cover all year round - you need to have the cash to pay them.”
Perhaps more relevant to most smallholders is the separate New Entrants start-up grant scheme, with a flat rate £11,500 grant. A minimum of three hectares of land is required, with a detailed four-year business plan to show that a £450 to £7700 output could be achieved. Regular inspections will take place over the four years, to ensure the business plan is being followed.
There are also grants available for those farming on a larger scale.
In England, the focus is on young farmers under 40, who are entitled to an extra 25% on their BPS subsidies. In Wales, the Young Entrants Support Scheme (YESS) also offers grants to improve farm infrastructure.
In Scotland, there is a similar Young Farmers Start-up Grant scheme, aimed at farmers aged 16 to 40 with agricultural qualifications or a minimum of five years’ experience, working three or more hectares. You will need to draw up a full five-year business plan and, if successful, you could receive grants of up to £54,000.
“We are all worried about the changes that come if we are leaving Europe. It's best to get the cash you need agreed as soon as possible - it might not be there forever.”
Another source of funding for larger farms are government subsidies, currently provided by the EU - but changes in the wake of Brexit may make this problematical. The UK government plans to replace EU farm subsidies with a 7-year transition scheme. The UK government plans to introduce this seven-year transition period for farmers' funding from 2021, during which direct payments from the state will be reduced. Worries about the future of subsidies may make loans and other types of commercial funding essential.
There are many types of funding available. Getting the funding that is most appropriate for your particular needs and circumstances can be key to keeping costs down. At Rangewell, we help the farming community find the commercial funding it can depend on. We know all the lenders who can support the sector - and, just as important, we understand the challenges you face as an arable farmer, and the most appropriate type of funding for each one.
“You can’t just go down to the local bank when you need cash like your grandfather did. You need an independent funding expert like Rangewell to get the money you need.”
Funding for arable land
The price of productive acreage varies greatly across the country and will be influenced by many factors, including things like soil type.
The one thing that is constant is that acquisitions are likely to require large-scale funding. Commercial Mortgages can be used to buy any kind of commercial property, and some lenders may be prepared to fund farm premises or an existing farm business in ways that will help acquire the land itself. It can make high costs affordable - repayments can be spread over 25 years - or even longer with some providers. Interest rates are agreed on an individual basis but are likely to be low - like a residential mortgage, the loan is secured on the property itself, meaning that there is little risk to the lender, and meaning that savings can be passed back to you in the form of lower repayment costs.
Agricultural mortgages also exist which are specialised lending products for the sector, and which can offer very long repayment terms. In some cases, intergenerational mortgages may be available to spread the cost of buying land.
“Land is the best investment you’ll ever make - but it's a big cost. You need to get the lowest rate of funding over the longest time to pay for it.”
Funding for equipment
Farm machinery and vehicles are becoming ever more important to drive efficiency and profitability on farms. Even a smallholding will need a rotavator. Most operations will need a tractor, and larger farms may need GPS equipped tractors, harvesters and a range of attachments. Your farm will need barns and silos - which can also be considered as equipment.
The most effective solution for most types of agricultural equipment is Asset Finance. Asset Finance spreads the costs over time and allows your new equipment to pay for itself from the extra productivity and revenue it generates. Equipment suppliers will offer finance arrangements to support their sales - but, remember, their finance plans will be designed to benefit their business rather than yours, and may be more expensive as a result.
“Try and work your land with worn-out gear? That is the biggest mistake you can make. It ends up costing you more - especially when you have a breakdown in the middle of harvest.”
Coming to Rangewell and letting us find the most competitive finance can mean substantially reduced costs to you and your farm business.
There are several different types of Asset Finance:
- Hire Purchase will allow you to hire equipment, vehicles and buildings until you have paid for them. Agreements generally last between 12 and 72 months and require a 10-20% deposit plus fixed monthly instalments. HP may be most suitable for equipment you will use for the long term.
- Leasing is, effectively, like renting. You pay a monthly charge to use a particular asset. With some arrangements, maintenance, repairs and registration will be the owner’s responsibility. It’s common for high-cost items which will have a limited life – it means you can easily update your equipment when you need to.
- Contract Hire can also be used for farm vehicles. Payments are calculated on the purchase value less the estimated value of the vehicle at the end of the agreement. This helps keep monthly repayments down and makes it easy to switch to a new vehicle when the time comes.
Funding for everyday expenses
Crop farming only generates income at specific times of the year - and outside harvest time your farm can suffer a cashflow crisis.
We can help arrange Working Capital Loans to deal with the costs. We know lenders with experience in the farming sector who understand the pressures of seasonal cash flow - and who may be able to make arrangements for quarterly repayments, or even special lending agreements individually planned to reflect your seasonal income streams.
“It's all good when you take the crop to market - but the rest of the year you worry about cash - unless you have some proper arrangements worked out.”
Funding for buying a farming business
The cost of buying an existing farm or smallholding will depend on the size and nature of the land, the turnover and the profit it is currently capable of generating, the condition of its equipment, the market it serves, its location and its potential for the future.
If you have a property to use as security, arranging the necessary funding could be relatively straightforward - although any lender would expect you to have a record of experience in the farming sector, as well as being able to provide a detailed business plan to demonstrate your ability to run your new business successfully.
Why you need Rangewell to find finance for your farming operation
The farming sector is specialised, and not all lenders will be able to provide the understanding that is required if you are looking at starting up on a small scale - or even acquiring an existing business.
Getting funding may also be particularly challenging in the current economic climate.
However, all the costs involved can be met if you find the right lender. At Rangewell we have built up relationships with lenders who specialise in finance for crop farming businesses.
If you are looking at the possibilities of setting up a business in the agricultural industry or are looking for the funding to make the most of your existing farm or smallholding, you can see some of what we can do here, or call us now to get our agricultural funding experts working for you.