Forestry Finance

Forestry has been the top-performing asset class in the UK over the past three years, with total returns at 14.7%, beating returns on commercial property, homes, equities and bonds. Of course, when it can take more than 50 years between planting out and the sawmill, it can mean challenges quite unlike other types of farming. 

These may be offset by some valuable tax advantages, not least as a potential hedge against Inheritance Tax.

Planting costs are between £1,200 and £1,500 an acre when establishing a new forest, and 90% of this can be covered by a grant. 

But all land is a costly purchase. You may not always have the cash you need to hand especially for a large holding. You may need to move fast to secure the plots you want. Most farmers find banks are slow to approve finance for agricultural borrowing if they will lend at all.

Commercial lenders have started to see that forestry may be suitable for lending; the market has long-term stability and forestry presents a relatively low-risk form of secured property. The current strength of the market plays a role – a greater number of investors and higher values means the banks are eager to tap into the market and provide funding opportunities which appeal to investors.

However, the high street banks are relatively new to lending to this sector. Obtaining funding and granting the required security over the forest may not be straightforward - especially as features like clawbacks may be present. Some of the unique aspects of the forestry industry, as well as purchases, may not initially fit your bank’s lending criteria.

But the solutions can be found with Bridging Finance, which can offer you the funding you need fast.

What is Bridging Finance?

An Agricultural Mortgage may simply take too long to arrange for a property deal that needs to be completed in the short term.

Bridging Loans are large-scale short-term loans. Like a mortgage, they are loans secured on the value of the land itself, but unlike a mortgage, they can be arranged very rapidly - often in a matter of days. They “bridge the gap” in funding until long-term finances can be put in place.

It means that you could take out a Bridge Loan to buy a forested area at auction, or whenever a quick sale is required. With your new land secured,  you can then take your time to arrange an Agricultural Mortgage. Use this to repay the Bridging Loan and repay the cost of your investment in forestry over the years when it is already generating returns for you.

Some lenders are prepared to take a second charge on property as security, meaning that the loan can be against a property which is already under finance such as a mortgage.

How much will Forestry Finance cost?

The cost of bridging is relatively high compared with long-term lending solutions - but remember, they are only designed for short-term use, which makes the costs more reasonable.

Several factors will influence the cost, including the “exit strategy”. This is how you will intend to repay the loan.

So you can use them for the short term to buy additional productive acreage at an auction or at a private sale. For the longer term, you can arrange a mortgage as an exit strategy. Bridging providers will work flexibly with their customers to determine whether their exit strategy is viable.

In addition to a monthly interest cost, lenders may charge a lender arrangement fee - a fee for setting up the loan - but all costs will be agreed when the loan is set up.

Why you need Rangewell to set up Forestry Finance

Bridging Loans are intended to give you urgent funding solutions. You need to find the right arrangements and the most competitive deal - and find them quickly.

At Rangewell, we have the expertise to help you use them as a tactical source of funding for the short term, and we can work to find the most competitive source of long-term funding to replace them.

Our knowledge of funding solutions for the property sector can be an important asset for your business. Call us to find out more.