Broker guide: Agricultural finance

Broker guide: Agricultural finance


With demand for short-term loans on the up and the reduction in mortgage availability and traditional secured lending streams, Bridging & Commercial

wanted to take a look at another area of bridging finance which is not as well-known or publicised about – agricultural finance.


Agricultural finance is well funded, the market is strong and the demand for it is constant making lending institutions stand up and take notice of this strong part of the market.

One such lender that focuses on the agricultural market is UK Acorn Finance Ltd

(UKAFL), which commenced lending in July 2010.


UKAFL are funded by the Connaught Income Fund Series 3 and specialise in short-term lending to the agricultural sector for three specific scenarios; extension of an existing holding, development of farm buildings that have planning permission and the purchasing of tenancy farms. The Income Fund runs solely through and with UK Acorn Finance, although like the other Series this may be open to other lenders in the future.

Alistair Mawdsley, Managing Director at Connaught Asset Management

, told B&C, “The fund solely utilises the expertise of Acorn as a specialist partner.” Touching on the reasoning behind creating the Series 3 Fund, Alistair replied, “From our experiences with our other funds which focus on residential and small commercial short-term lending we have proven that our models work.  We are constantly looking at new products for sophisticated investors and had been keeping an eye on the agricultural asset market in particular. The marrying up of our existing model with agricultural assets was a natural progression.”


The majority of the loans provided are for farmers but also to landowners, farming businesses and occupiers.


All lending is secured by a first legal charge on agricultural land, buildings and country property. Their loans range from £30,000 to £5 million in value and are secured by a legal first charge basis against, for example, farmhouses, rural and country properties, agricultural buildings and land. Their maximum term is 12 months and the average LTV is 65 per cent with scope to increase it to 75 per cent in selected cases.


UKAFL work with three other companies within their model. UK Farm Finance Ltd act as a brokerage and introduce lending business to them, Acorn Agricultural Finance Ltd provides the underwriting platform and Acorn Farm Management Services Ltd provide business plans to support loan applications and monitor live loans.


Des Phillips, an experienced farmer, is a consultant and major shareholder of UKAFL. Since 1999 he has developed a successful track record of providing over £124 million of finance to farmers through organisations such as UK Mortgages and Finance Services, UK Farm Finance and latterly UK Country Capital who had their funding line withdrawn in 2007. However, Des now believes that the time is right to re-enter the market with a new offering.


UK Mortgages and Finance Services Limited, a specialist agricultural mortgage broker, were for some time synonymous with the successful re-structuring of many agricultural businesses.


The ability to offer long-term finance was on the up and with the formation of UK Farm Finance, together with the forging of a new and successful relationship with a bridging loan company, the ability to assist in restructuring exercises was improving. The launch of UK Country Capital Limited in the late autumn of 2005 allowed the business to operate its own bridging company, advancing facilities over three, six, nine or 12 months.


According to the Connaught Income Fund’s ‘Series 3 Fund Summary’ from June last year, the Series 3 Fund currently had at the time 41 active loans with the overall value of £21,262,811.50.


The current conditions in the UK lending market have resulted in an increase in the time it takes to source funding. This is the opportunity that Connaught have realised - to become what is essentially a rolling credit facility to specialist partners who make bridging loans.


Agricultural finance, according to Alistair Mawdsley, currently stands at £12.3 to £12.7 million and given the lack of volatility in the agricultural land market has been the main reason for Connaught’s move into this area of finance.


Agricultural finance can be provided for a variety of reasons ranging from needing funds to invest in a farmer’s herd or a range of traditional buildings needing to be developed and then sold.


A bridging loan in agricultural finance can also assist where an established tenant farmer, who is a sitting tenant, wants to buy their farm from their landlord. The finance can also allow farmers to undertake financial restructuring or grasp an opportunity that can’t be financed elsewhere and lending will usually be related to the farm business including land acquisition and building development. It can also help borrowers with all their short-term cash flow needs to help the finance of a farm.


B&C spoke to a number of lenders and packagers in the industry about agricultural finance and found out that this type of financing is a rather niche area. However, there are a number of other sources with whom a borrower can look to in applying for agricultural finance.


One informed us that they used to work with Lloyds TSB a couple of years ago when they had an agricultural semi-commercial product at the time but don’t focus at this type of finance nowadays.

B&C also spoke to Graham Allen, Managing Director of master broker Commercial Money Matters

, whose company's 'Rural Business' arm can arrange bespoke commercial mortgages for rural businesses. Graham told us that, “Some traditional banks will lend on farming but that agricultural finance is one of the undersold areas in the UK.” He added, “Agricultural finance for land and property is generally commercial finance.”


There is a market gap for agricultural finance and over the past decade farmland prices per acre have shot up with demand from non-farmers, particularly developers, outstripping supply.


Property developers have looked increasingly more at farmland, which is fuelling a surge in short-term loans. A number of lenders experienced an increase of enquiries in 2010 from people looking to increase their land banks through the purchase of farmland and quick access to cash is the key dealmaker.

Redrock Commercial Finance

, an associate of the Association of Bridging Professionals, sources short and long-term loans and finance for farmers, with loans ranging from £25,000 to £50 million. These loans allow farmers and land owners to develop in a number of areas, such as farmland purchases, acquisition of machinery, expansion of livestock and even barn conversions.


Gary Poulton, Director at Red Rock Commercial, informed B&C that the lenders they look to whilst assisting in agricultural finance enquiries are West One Loans and Bridgewater Acceptances.


Gary gave us details of a case study for one of their enquiries right through to completion of agricultural finance with a bridging loan.


“We received an enquiry from a farmer in Devon who has a farm which had a forced sale value of £2.1 million. He had existing borrowing with Clydesdale of £850,000, whereby they were calling in the loan. The issue was that the farmers trading revenues were being controlled by Clydesdale which was restricting him to grow his business. He had planning permission for a wind farm and a tipping license which Clydesdale was preventing him from implementing. He could not refinance with a high street lender because of his restricted turnover. However, two lenders would take the deal providing the wind farm and tipping license was implemented thus increasing his annual profits immensely. The outcome was that we secured a 12 month bridge for the farmer taking out the Clydesdale mortgage allowing him to move forward with his tipping license and wind farm. His exit strategy will be to refinance with a well-known high street bank."


Clydesdale bank are still in the agricultural sector and B&C received a comment from a bank spokesperson and were told, "While we cannot comment on specific cases, Clydesdale Bank Agribusiness has been, and remains, one of the largest and most active lenders in this sector."


Many short-term lenders won’t consider providing a bridging loan if it is secured on agricultural or remote properties or those with limited alternative use, and they often require a first mortgage and for limited companies, a corporate or personal guarantee. Most lenders are unable to lend purely against agricultural land unless there is planning permission on it which is an acceptable security.


Proactive lenders however, will consider finance for almost all types of site, from farmland through to industrial brownfield plots, for agricultural purposes and with or without planning permission, all with a variety of repayment options. Specialist lenders are also a lot more flexible in that they can allow a borrower to use land as security against a commercial loan.


A commercial loan can provide a flexible and affordable solution to farm & agricultural businesses that will allow the individual access to capital that would not usually be available in most circumstances. A commercial loan is another way to finance the purchase of buildings or land for farm & agricultural purposes. They can be used for a variety of different business purposes. The most common of these being the purchase of a business premises, whether buying an existing farm or agricultural business, or starting a new one.


Despite the numerous difficulties experienced by farmers over the years the substantial increase in commercial business and more commercialised approach that farmers, for example, are now taking and utilising emphasises the confidence in the market.


Land prices have not fallen which has allowed lenders to take a more favourable stand in respect of restructuring a farmer’s finances as all potential loans are viewed on a LTV basis.


With regard to short-term bridging loan facilities, a set rate is applied across the board and many borrowers appreciate interest being taken up-front to overcome any servicing difficulties during the short life span of the loan.


This area of financing is rather specialised and is all about the expertise and reliable relationships of underwriters, surveyors and valuers in the rural areas.


Traditionally, any potentially struggling farmer had a very limited choice of where to go to attain a bridging loan in agricultural financing but nowadays there are those who specialise in this area. With the likes of UK Acorn Finance, with their strong funding line, and other sources bridging loans are becoming increasingly competitive and seen as a viable solution for farmers and developers alike.

By Jason McGee-Abe

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