Michael Bell from rural specialist George F White looks at current borrowing opportunities for farmers, the types of agricultural activity that are attracting investment and how this translates into best practice when looking to secure finance. 

Agricultural property has always been seen as a secure investment however this didn’t prevent banks from withdrawing from the market during the recent downturn. Being a specialist in its field, the Agricultural Mortgage Corporation (AMC) was an exception. Tom Oates, a Partner at George F. White, is an Agent for the AMC and the firm’s specialist North of the Border, he explains, “When other financiers have withdrawn their support from the agricultural sector, the AMC has always been willing to invest throughout the tough financial period which we are continuing to experience.” The good news for farmers is that increasing numbers of financiers are now also offering deals at competitive rates as they become aware of the benefits of investing in this sector. 

Land has over the last decade been a very stable investment with increases in value exceeding that of other major asset classes. Due to demand currently outstripping supply, land is expected to retain its value and so this perception looks set to continue. Land has been seen as a good hedge against future inflation by private investors and lifestyle purchasers alike. In addition, as the debate on food security continues, agricultural commodities also hotly tipped as an investment opportunity.

Between 2008 and 2009 we saw around a 10% drop in the number of farmers purchasing land. This could be attributed to the lack of support from banks who may not have realised the security that an investment in agricultural land can offer.

Following the banking collapse, the onus is now on the person trying to obtain capital to prove they are a sound investment. This means that any request needs to include the presentation and analysis of detailed accounting data. The times when a simple farmer’s balance sheet or predicted gross margins were sufficient are gone. Now detailed cash flows, future forecasts and funding briefs are what will encourage bankers to put their money where their mouth is and prove that farming can be a sound investment.

In terms of achieving capital investment to purchase land, then all types of agricultural activity are able to secure borrowing, as the security of investment is in the value of the land. Up to 60% of the value of agricultural property can be borrowed providing it can be demonstrated that the loan can be serviced within the business cash flow. Many banks will have regimented methods of either repayment or interest only loans which offer little flexibility, however, the AMC are able to mix both interest only and repayment on separate sections of a mortgage.

So while if you are looking for a mortgage or long term loan it is prudent to see what the firm who already takes care of your day to day banking can offer, this growing realisation that the agricultural sector is a relatively secure investment means the market place is full of competitors who can potentially offer better deals.