News

So you have dreamt about starting your own farming business but don’t know where to start. Today we will be looking at how to get started, the pros and cons, and most importantly, what kind of funding is available to you.

Running a farm is not an easy prospect, and it is vital that you understand exactly what you are taking on before you start the process.

Important things to consider when starting a farm

Before you start, you must decide on what kind of farm you will be starting, which will be determined by aspects such as weather and location. You will need to be realistic about your options and budget so that you can be sure that you have taken all financial implications into account, such as technological investments, employee costs, repairs, and maintenance, amongst others.

Demand for what you are farming should be carefully considered, and it is vital that there is a market for your produce for your farm to be successful. While the idea of farming may seem like an attractive option, there are many eventualities that could lead to disaster, including floods, droughts, market price crashes, operating cost increases, and poor crop yields, to name but a few. Investing in effective irrigation systems and water tanks can go a long way towards tackling some of these issues; however, that comes at a price that will need to be factored into the overall cost when looking for funding for your new farm business.

If you are planning to farm livestock, you will need to have a good veterinarian with plenty of experience with farm animals. Waste management for livestock farming is also of paramount importance, and you will need to stay on top of it. Manure can be collected and used as fertiliser or sold for profit.

The next important thing to consider is what technology will be required for the type of farming you plan to do. Technology may include, but is not limited to, machinery, tools, specialist software, and livestock tracking devices. It is vital to keep all software up-to-date in order to get the best out of the technology you will be utilising. It is worth investing in items that will prolong the life of your machinery, such as rain covers and sheds.

Knowing your crop well and when to plant is absolutely imperative to being a successful farmer. It is also advisable to rotate your crops, as planting the same crop year after year can result in pest and disease issues. Soil conservation is just as important, so efficient soil testing will be essential.

Advantages and disadvantages of managing your own farm

While starting a farm may be the perfect choice for you, it is worth looking at the pros and cons, as running a successful farm can be a lot harder than you may imagine.

Advantages

If you do your research on consumer demand before deciding whether you are going to invest in livestock or agricultural farming, you will be halfway to a profitable future. The demand for farm produce, whether it be fruit, vegetables, meat, or wool, will always be there, making it a potentially very lucrative endeavour. Pricing things correctly will, of course, be the key to success, as will looking at your competition and marketing yourself and your products effectively.

The opportunity to diversify is also a big advantage when it comes to farming. You will not need to stick to one type of crop or livestock and can mix both if you wish to. Other forms of income can also be looked at, such as a petting zoo or a bed and breakfast. These opportunities can potentially generate some further income for you.

Another advantage is the sense of achievement you will experience when farming in a way that gives back to the environment and the local area. You will reap health benefits from being outdoors, and as farming is quite a physical job, it will go a long way towards keeping you fit and in shape.

Disadvantages

As there is always a downside to nearly everything, it is advisable to consider these before taking the leap into farming.

One of the main cons is that you will, at some point or another, have to cope with extreme weather. If the great outdoors is not for you, then it is probably safe to say that neither is the life of a farmer. Early starts, around 5 a.m., are typical, so if you are not a morning person, then this is not the career for you.

Harsh weather is not only hard for the farmer but can be detrimental to crops, particularly in the winter months. Strong winds, snow, and rain can ruin crops, especially when it is not the typical weather for the season. With global warming causing unpredictable weather such as extremely high temperatures, droughts, and floods, it can be difficult to predict what lies ahead. High winds can also damage farm property, such as fences and buildings.

Farming is also extremely hard work and is not for the fainthearted. Twelve-hour days are typical, and time off can be difficult as farm duties don’t stop. You will need to be physically fit and mentally strong to work in this industry. Hiring staff will alleviate these issues so that you can take a break at times.

Financing your farm with an agricultural bridging loan

Once you have done your homework and decided that managing a farm is perfect for you, you will need to work out what funding you will need to get started.

Agricultural bridging finance is available for those looking to start a farming business and is designed to provide short-term funding, typically between 1 month and 3 years. As it is a secured loan, the amount you can borrow will depend on the value of the assets you offer as collateral.

There are many uses for an agricultural bridging loan, including quick land purchases. As bridging finance can be arranged faster than other types of loans, it is an attractive option for those looking to buy quickly, particularly if you find a fantastic deal that requires you to act fast in order to secure the land.

Short-term funding, such as bridging finance, can also be used to purchase expensive agricultural machinery such as tractors, harvesters, feeding systems, etc.

Agricultural bridging loans can also be used for farmers wishing to diversify and move into other areas, for example, a zoo or café, which can be very costly but can be funded with short-term finance.

As farming can be somewhat risky due to weather and other external factors, sometimes funds are required to repair, recover, and restructure when there have been unexpected issues. Due to the speed at which an agricultural loan can be arranged, you will be able to get things back on track faster than if you were to take out a more traditional loan product, which will take significantly longer to arrange.

For livestock farmers, existing livestock, which is considered a tangible asset, can be used as security in order to secure a bridging loan to buy more. This gives you the opportunity to expand the business and increase profitability. Agricultural bridging finance is used by farmers a lot due to the ever-changing and often unexpected changes that occur in this industry when funding is needed fast until longer-term loans can be arranged. For this purpose, this type of loan product is the best solution; however, it is imperative that you consult with a specialist broker who is experienced in this area and can give you all the advice you need and help you secure the best deal.

As if the UK’s economic picture wasn’t already sketchy enough, its future outlook is even gloomier. The cost-of-living crisis is likely to worsen before it improves, with the Bank of England warning that inflation could go beyond 10% before the year is out.

But there is at least one positive in all the doom and gloom, at least from a bridging finance perspective; while all this is going on, the bridging loans sector is not only booming but is also offering its most competitive products in history to a growing audience of borrowers.

Application volumes and inquiry levels continue to hover at unprecedented highs as businesses and consumers alike take their businesses away from the major High Street banks. The more difficult and expensive it becomes to qualify for conventional loans or mortgages, the greater the tendency to seek unconventional alternative options.

One of which is bridging finance, which, due to its speed, flexibility, and accessibility, has skyrocketed in popularity over the past couple of years.

“This is great news, of course, particularly in the challenging economic environment,” said Vic Jannels, chief executive at The Association of Short-Term Lenders (ASTL).

“The latest ASTL lending data for the final three months of last year has revealed that completions were £1.2m for the quarter, which represents a record high and an increase of 19% on the previous quarter. This has led to another increase in loan books, which now stand at £5.08bn,” added Jannels.

Housing market competition: A key driver

Gross bridging loan completions were up a full 32% (reaching £485 million) during the first six months of last year, increasing further to an impressive 52% by November. This momentum has been largely maintained throughout 2022, resulting in average bridging loan interest rates hitting a new all-time low.

All of which is playing right into the hands of prospective homebuyers, many of whom are becoming increasingly disenchanted with what is available on the High Street, if not entirely out of the running for mortgage loans, due to increasingly strict lending criteria.

Demand for affordable homes continues to outstrip supply in almost every part of the UK. For buyers looking to avoid regrettable chain-break scenarios, bridging finance is offering a fast-access lifeline. Secured against their current home, a bridging loan can be used to buy their next home outright and allow plenty of time to sell their previous home for its full market value.

In addition, property developers are turning to bridging finance to fund purchases and renovations of vacant properties across the country. As most major banks continue to classify homes in questionable condition as ‘not mortgageable’, developers are finding themselves with little choice but to explore the alternative options available.

Matthew Arena, managing director at Brilliant Solutions, believes that the bridging finance sector is playing a major role in easing at least some of the pressure the housing sector is under.

“Bridging is performing well and has helped with several key housing issues,” he said.

“With property supply being so scarce, the ability of investors to develop or refurbish property and sell quickly is driving the sector,”

“Equally, the regulated element of the business is growing as the drive to move is as high as ever and suitable property is so difficult to find.”

“This is leading to more refurbishment and also a higher tendency to pay for bridging as a chain-break solution because there is a greater certainty of sale and a higher perceived loss if the opportunity falls through.”

Competitive finance with flexible terms

Unsurprisingly, demand for fast-access bridging finance has triggered a major spike in product availability from a growing network of specialist lenders. Once a fairly niche field, the bridging sector has become fiercely competitive.

Covering the needs of consumers and businesses alike, there are so many lenders now fighting to get new customers on board that average interest rates have been plummeting. It is now the norm to be offered a bridging loan with a monthly interest rate in the region of 0.5% or less, having once been reserved exclusively for prestige clients.

Meanwhile, associated borrowing costs (arrangement fees, transaction fees, completion fees, etc.) have likewise been dropping for some time, if not being removed entirely by many bridging specialists.

Alongside increasingly competitive deals, the flexibility of bridging finance is also proving a big draw for prospective borrowers. Employment status, proof of income, financial position, credit score, none of the usual obstacles apply to bridging finance applications.

Bridging loans are issued primarily based on two things: the provision of assets of value to cover the costs of the loan and evidence of a viable exit strategy for timely repayment. No jumping through hoops and no need to disclose your entire life story, as remains the case on the High Street.

All of which paints a picture of a booming bridging finance sector that’s becoming increasingly attractive to borrowers from all backgrounds. And with more economic doom and gloom on the horizon, it is a trend that looks set to continue for some time to come.

The UK’s housing market continues to go from strength to strength, proving a blessing for some and a curse for others. Disparities between supply and demand are growing, with the average estate agents’ branch now having just 22 properties available for purchase. 

By contrast, estate agents currently have an average of 84 registered buyers, prompting ferocious competition among interested bidders.

Meanwhile, the number of cash buyers purchasing homes outright has increased significantly.  According to the latest data published by Hamptons, a full 73% of home purchases in 2022 so far took place ‘chain free’. Back in 2010, the figure stood at just 65% when becoming part of a property chain was not seen as such a risk.

Commenting on the findings, Hamptons said that the more competitive things become on the housing market, the greater the appeal of becoming a cash buyer.  Traditionally, the ability to purchase a home outright has been reserved for those with significant on-hand cash reserves.

The appeal of chain-breaking

The biggest benefit of avoiding conventional property chains is removing reliance on other buyers and sellers. If you have the cash available to purchase your next home outright, it doesn’t matter whether you have found the right buyer for your home.

You can purchase your next home for cash, leave your previous home on the market and wait for it to sell for its full market value. The opposite is to move only after agreeing on a sale on your current home, which means becoming part of a long and potentially fragile property chain.

In addition, estate agents report that properties purchased chain-free are almost always offered at preferential rates. On average, it can cost around 2.5% less to purchase a property as a cash buyer, than via conventional channels.

It is therefore understandable why more prospective movers than ever before are looking into the available options for going chain-free. One of which is bridging finance, opening the possibility of cash property purchases up to a much broader audience.

Bridging finance for chain-free home purchases

A competitive bridging loan can empower movers with the flexibility traditionally enjoyed only by comparatively wealthy cash buyers. The simple fact of the matter is that most homebuyers simply do not have massive sums of cash in reserve, sufficient to purchase their next property outright.

Bridging finance is issued in the form of a secured loan, similar to a mortgage. The applicant’s home is used as security for the loan and the amount they can borrow is based on their equity level.

For example, a homeowner with a property valued at £400,000 could take out a £300,000 bridging loan with an LTV of 80%. If the same homeowner had only paid off 50% of their mortgage, they would have £200,000 equity and could therefore borrow £150,000 at 80% LTV.

Importantly, the funds raised with a bridging loan can be accessed much faster than those associated with a conventional mortgage or home loan. With all the required paperwork and evidence in place, the facility can be arranged and accessed in just a few working days.

This gives prospective buyers with sufficient equity in their current home the opportunity to buy their next home outright, beating competing bidders to the punch.

Cost-effective property purchase loans

As mentioned above, vendors are often willing to accept lower prices for their properties from chain-free bidders, typically around 2.5%. In addition, relocating with bridging finance negates the need to rush through the sale of your own home and perhaps agree to a price you are not fully happy with.

After buying a new home with a bridging loan, the buyer’s previous home can be left on the market for as long as it takes to sell it for the best possible price.  In the meantime, interest accrues at a rate as low as 0.5%, adding up to a hugely cost-effective facility.

Best of all, the flexibility of bridging finance opens competitive short-term funding up to the broadest possible audience. Even with a poor credit rating or a history of bankruptcy, it is still possible to qualify for a competitive deal.

For more information on the benefits of buying a home chain-free or to discuss any aspect of bridging finance in more detail, contact a member of the team at UK Property Finance today.