Diversifying your farming business

Investing in alternative sources of income can give your farm both extra profits and extra resilience. From farm shops to horse riding and from holiday accommodation to business centres, farms stand to benefit from diversifying their income streams.

The challenge is likely to be getting enough capital to invest in these new sources of income.

The solution is to get external funding, and to pay off loans when those new profit centres are working for your farm business. By securing short-term lending with a Bridging Loan you can often arrange the funding you need.

A Bridging Loan is essentially a type of large-scale short-term loan secured on your property. They are so called because they “bridge the gap” until you can find long-term finances can be put in place.

Bridging Finance is secured on property, like a mortgage, but unlike a mortgage it is designed for short-term use only. It is often used to buy the property it is secured on, but it can also be used to raise funds on property that you already owned, providing a cost effective solution for raising short term cash for virtually any need - including investing in diversification.

Diversification for farms can include:

• Business centres in redundant barns and stable complexes
• Farm shops
• Storage - from caravan parking to heavy plant
• livestock products - producing and selling sheep cheese, llama farms, goat dairying
• Crop products - growing and selling speciality flowers,
• Energy crops
• Training and promotion of rural crafts
• Facilities for craft businesses
• tourism - for example, opening some of your land up for camping, or offering bed and breakfast
• Value-added products - smoked products, cheese and ice-cream
• Woodfuel projects

Farmers can find it difficult to secure finance with traditional lenders, and the once-close relationship with the local bank manager is no more.

However, at Rangewell we know that there are several specialised providers of Agricultural Bridging Finance who understand the pressures you face and can create bespoke loan packages. While Bridging Loans can be an ideal way to get a new project up and running, they are not a long-term financial solution. Few lenders will loan for more than 2 years, and a Bridging Loan will need to be repaid as soon as possible to keep your costs down. You should make sure that you have a viable “exit strategy” for repaying the loan in place before applying for a Bridging Loan.

With a Bridging Loan you can negotiate a repayment structure which suits your needs. You can defer all payments until the end of the term. This is known as “rolling up” payments, and though more expensive in the long run it lets you minimise their ongoing payments. It can provide the breathing space you need after a bad year, when it is hard to generate profit until a new harvest is brought in.

Lenders will want to know how you intend to repay the loan. This is known as an “exit strategy”, and can be either a long-term financial solution such as a remortgage or income.

How much will funding cost?

The cost of bridging reflects the scale of lending required, how it will be repaid, and how it will be used. In addition to a monthly interest cost, lenders may charge a lender arrangement fee – a fee for setting up the loan.

All costs will be agreed when the loan is set up.

Why you need Rangewell for diversification finance

Bridging Loans are intended to let you deal with all types of funding needs, and can provide large-scale finance very quickly to support your diversification plans with the investment they need. However this means that costs can be high, and that getting expert advice to secure the funding you need is essential to avoid excssive costs.

At Rangewell, our expert knowledge can help you secure the funding you need when you are ready to diversify.

Call us to find out more.