Q: How has the agriculture sector evolved in recent years?
A: Agriculture continues to evolve as farming faces the challenges of the twenty-first century. Increasing land values have improved the overall worth of many farming businesses, but there is still the challenge of delivering sufficient profits to meet day-to-day living costs. Diversification is a reality with farmers seeking new ways to generate cash utilising all the assets at their disposal. Surplus or non-core farm buildings can be converted for commercial or residential use, and owned land can provide the opportunity to introduce renewable energy projects to the overall income mix.
Q: What particular challenges do farming businesses face in terms of funding?
A: The agriculture sector, by its nature, has to be prepared to deal with the unexpected. World markets and currency volatility, extreme weather, outbreaks of disease such as foot and mouth, and salmonella, and events such as the recent horsemeat scandal can all adversely affect cashflow and profits, making forecasting and business planning particularly challenging. Even without such external events, cashflows are typically uneven throughout the year due to seasonality and the annual receipt of the Single Farm Payment.
Q: What are the day-to-day banking needs of agriculture businesses?
A: Exactly the same as any other business. Current accounts for day-to-day banking, with the option for an overdraft to meet working capital needs and to help bridge the gap when paying for assets pending receipt of funds, or while longer-term loan facilities are being arranged. Supplier Payments can help in this process, but the key to finding the most appropriate funding package is the bank’s Agriculture Relationship Director, who will make it their business to fully understand the funding needs of each farming operation. Deposit accounts are available for surplus cash while online banking can assist with day-to-day account management and making regular payments to suppliers.
Q: What finance options are open to agriculture businesses seeking to invest long-term in assets such as land and buildings?
A: For those wishing to borrow for land purchase with repayment terms of up to 25 years, the bank offers an Agricultural Commercial Mortgage that can be tailored to suit long-term financing needs. There are fixed and variable loan options available and a range of repayment options including interest-only. The conversion and/or development of farm buildings for alternate use, or just enhancing the core facilities of the farm, might be better funded over a 10 or 15 year-term, but with equal flexibility of repayment.
Q: What type of funding would be appropriate for other asset-related spending, such as replacing farm machinery or improving existing facilities?
A: The acquisition of assets is a major commitment for any business. Purchasing the right equipment when it is most needed can make a significant difference to the business. Medium-term funding solutions are most likely to be appropriate, reflecting the likely working life of the assets in question. If farm machinery is being purchased, specific asset-based finance solutions can be arranged through Santander Asset Finance. A straightforward loan could also be provided, with repayment terms typically over four to seven years.
Q: What do you think makes the difference in terms of building strong relationships between banks and farming businesses?
A: At Santander we aim to understand the requirements of individual farming clients, particularly the cash dynamics of the business. Cashflows can vary hugely depending on the type of farm: how long crops take to grow, the nature of the livestock and so on. The extent of additional business activities also impacts upon cash availability. We really get to grips with the details of each farming operation and the needs of the people behind it. And it helps that our relationship team is passionate about farming and enjoys spending time in this environment!
The Dent family’s North Yorkshire farm has benefited from our commitment to understanding individual needs. The family was seeking additional finance to fund growth plans – including holiday lets – and to ease the passing of the farm to the next generation. Santander took the time to understand the opportunity and identify a funding solution.
“Santander treated us as individuals, took the time to listen to us and importantly, heard and understood what we were trying to achieve and the challenges we faced,” says Ena Dent, a partner in Dent Farm. “Their team put together a package that gave us the flexibility to make the changes our business needed. It allowed us to grow and to put the farm on a firmer footing for the next generation of the Dent family.”
For more information about how to access agricultural funding, please contact your local Relationship Director.
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