Unlocking borrowing solutions for the rural sector

A client recently approached us concerned that their current bank was not offering them the most competitive terms on a £14 million refinancing package they required for their rural estate.

When it comes to finance, it is clearly a very different world to the one we were living in back in late 2021 when the Bank of England base rate was just 0.25%.

Today we are looking at a base rate of 5.25%, following 14 successive rises because of inflation across the global economy.

This is putting a further cost pressure on rural businesses at a time when they are already grappling with high input costs, wage inflation, market volatility and the phasing out of Basic Payments.

Such challenges make it ever-more important to understand the different finance options available to rural businesses, so you can secure the most competitive funding for your needs.

This is why the first thing we did was to sit down with the client to get a better appreciation of their objectives, leading us to propose a very different deal structure to the one they had been thinking of. We changed the mix of overdraft and term loan, we changed the security package to make it more appealing to certain banks, we improved the serviceability figures through cross collateralisation, we changed the term requested to gain a better rate and, ultimately, we were able to more clearly articulate how and when the debt would be repaid and why that would not be now.

We then approached nine banks on their behalf, obtaining nine offers which we then assessed for value of money and whether they fully met our client’s needs. Six weeks later a deal had been struck that will save our client more than £300,000 over a five-year term.

This is clearly a large amount of debt, however our team are regularly helping clients with much smaller debt levels. We are currently engaged with a client who is very unhappy with the level of service they are getting from their bank. Their total debt levels are less than £400,000 and their bank has removed access to a local manager and they find it difficult to run their business effectively. We are confident we will find them a new relationship-led bank and that there will also be cost savings in the process.

Lenders remain keen to work with rural businesses, but the current economic environment means we are seeing the following trends:

• With ongoing market and political volatility and rising costs there is huge pressure on profitability and cash flow. Ensuring the sustainability of an estate or farm business is challenging.

• Banks are offering clients prohibitive interest rates because they are not as receptive to requests for finance as they have been. A recent European survey highlighted a shortfall in the availability of agricultural finance, which is particularly impacting smaller farms and younger farmers, and this is a trend which feels like is playing out in the UK too.

• Shopping around for the best deal and getting the right financial structures in place is becoming an increasingly complex process with businesses often needing specialist advice to guide them through the process. 

• Larger loans may have trouble attracting traditional bank investment, requiring innovative solutions to be implemented.

• More positively, higher interest rates do mean there should be greater opportunities for any businesses with cash reserves.

Any potential investment needs very careful consideration, with a clear vision for how the investment will help the business to grow, and should be underpinned by a robust business plan.

But whether you want to diversify, purchase new land, invest in a major capital project or restructure loans to improve affordability, Strutt & Parker’s rural brokerage team can help you to explore your finance and debt options.

Underpinning our advice is a unique mix of on-the-ground knowledge and expertise of the land-based sector, combined with the financial fluency that comes with being part of the BNP Paribas banking group.

We have relationships with every major lender in the rural and agricultural sector. For businesses looking for a particularly large capital outlay into their land or estate, we also offer a unique private placement service that can match borrowers with institutions, funds and other private lenders looking for more sustainable investments.

So far, we have a 100% success rate in finding loans for clients and if we were to see a loan request that was not proceedable would be able to let you know very quickly before going through a full lending request, or restructure the request so it would attract support.

Another recent success includes a client based in the South East of England who was struggling to raise finance based on the back of their current business model. We analysed their situation and advised on some important structural changes which are now opening the door on the funding required.

Meanwhile, we have also worked with a client to support them on a whole market review of their borrowing requirements which total more than £30 million. This has resulted in them negotiating a new deal with their existing bank which will lead to annual savings of over £220,000/yr compared to their first renewal quote.

If you would like to know more about our rural brokerage service, contact Karl McConville.