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Asset-backed lending to UK agricultural industries

Craig Reeves, Founder

Prestige Asset Management Limited

Q3 2013


Asset-based lending is climbing to the top of the UK government’s economic recovery agenda.  Despite political moves to encourage (some might say ‘coerce’) the banks to lend more – e.g. UK Chancellor of the Exchequer George Osborne’s recent meeting with bank heads re the new mortgage plans – there are swathes of small businesses who these days fail to meet the banks’ lending criteria and must look elsewhere for finance especially when less familiar plans and purchases need to be financed.

Additionally many overlook the fact that that bank “capital adequacy” requirements are often significantly higher for lending to small businesses compared to residential mortgages etc.

The agricultural sector is a case in point.  To state the position bluntly, farmers need tractors and combine harvesters.  These cost money – a typical tractor price is some £65,000 and a combine may run to three times that. Farmers are also trying to improve their businesses by increasingly getting into the energy space by undertaking power generation on site (wind turbines, anaerobic digesters, solar panels and so on) and these are equally pricey with, for example, a small wind turbine coming in at £60,000 and few banks will provide finance despite attractive long term, index linked government backed “feed in” tariffs.

Finance undersupply / Demand oversupply

Even though any loan or lease arranged to support the purchase of these and many other key agricultural items, is secured on the value of that item as well as on the farm business and is in some cases supported by personal guarantees, there’s an undersupply of finance and, unsurprisingly, an oversupply of demand especially in light of recent high profile lenders who have either left the UK or scaling back non-core lending activity.

This funding imbalance is allowing “non-bank” finance houses jointly to offer valuable lines of finance to the agricultural sector and, at the same time, often via fund structures, to achieve equally valuable, secured returns to private and institutional investors at a time when yields from traditional investments are low to non-existent.


An additional attraction, from an investor’s viewpoint, of this form of targeted asset-based finance is that the returns tend to be steady rather than episodic reflecting the regular interest payments levied on the borrower.  This is particularly true in a broadly diversified portfolio and although, top-down, UK agriculture might appear to be a narrow sector, a broadly spread investment approach is both achievable and desirable.

The table below provides a snapshot of some of the core finance and lending areas that are in play.





Power Generation

Land and Buildings

Loading shovels



Wind turbines

Ag & horticultural land

Earth Movers

Grading machines

Combine Harvester

Solar PV

Equestrian land

Telescopic handlers

Filtering machines

Ploughs,  Balers

Anaerobic digestion

Kit buildings, barns, sheds, cabins

4x4 drive vehicles

Planting machines


Bio mass

Secure Storage



Drills, Sprayers

Bio gas

Worker residences


Unsurprisingly, these and other potential financing areas require different approaches varied by duration, in some cases security and, naturally, by target returns.  While each deal varies in the detail, it is possible, loosely to divide lending finance into three areas: 



Lending Finance Area 1

Lending Finance Area 2

Lending Finance Area 3

Target Return

7.5% - 9.0% p.a.

10%-12% p.a.

12%-14% p.a.


1 – 3 years

2 – 7 years

4 – 7 years





Purpose of Loan:

To buy a main machine integral to the success of the business e.g. tractor, excavator, combine harvester, Landrover 4x4.

To fund all agricultural machinery, some vehicles and fixed assets such as farm buildings and produce stores.

To fund longer-term (e.g. land purchases or renewable energy projects) which provide new income to an established business.


Security over acquired asset – additional security may also be taken on a case-by-case basis.

Security over acquired asset – additional security may also be taken on a case-by-case basis.

Energy projects secured over land on which they are situated and assignable feed-in tariff income streams.



It’s a truism to point out there are risks in any area of investment but farming’s vital role underpins the investment proposition. In the UK, there are for example, approximately 300,000 active farms with an average size of around 57 hectares.  Some 40,000 (14%) of farms in the UK are larger than 100 hectares, making up 65% of the agricultural area. Top down, farmers are responsible for managing around 75% of the UK's surface area. The average UK farm is also approximately double the size of a typical French farm, some of which can be explained by the fact that there is currently no inheritance tax or wealth tax on UK agricultural land.

Yet, looking case-by-case there have been defaults and arrears but these are inevitably covered by the value of the asset and – speaking personally - have been managed at a level significantly below 1.5% p.a. of agreements made over a sustained period of time for the investment managers, competition from other finance houses (or indeed from renascent banks) should not pose problems even into the next decade. There’s room for all particularly as the UK economy seems to be staggering back into the black prompting increased demand for cash to support business development.

The growing uncertainty re the UK’s membership of the European Union with its notorious Common Agricultural Policy (CAP) seems unlikely to have major repercussions given successive British governments’ enthusiasm to increase national food security.  It’s worth noting here that British agriculture, according to ‘’ provides around 60% of the UK’s food needs even though it employs just 1.4% of the country’s workforce. 

More generally, farming will always be a key industry as the global population increases and farmers will always require money. Indeed London alone is expected to grow by a further 1 million people (many from overseas) in just the next 10 years. Every one of them will consume a significant amount of food and energy.

The great US entrepreneur, Paul Getty, is resonant here: “Money is like manure, you have to spread it around or it smells.

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