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One of the most common misconceptions I encounter when reviewing farming businesses is that a borrowing problem must mean a debt problem. In reality, this is rarely the case.
Many of the farms I work with are profitable, well-managed businesses with strong asset bases and clear long-term plans. The issue is often not how much they have borrowed, but whether the finance has been structured in the right way for its purpose.
Borrowing is an integral part of modern farm business management. Whether replacing machinery, investing in buildings, expanding an enterprise or simply managing cashflow through the year, finance can be a valuable tool. However, the real issue is choosing the wrong type of finance for the purpose it’s intended to serve.
In agriculture, Hire Purchase (HP) has long been a popular solution for machinery purchases, and for good reason. It’s straightforward and usually aligns well with the working life of tractors, combines and other assets. The repayment profile is clear, ownership transfers at the end of the agreement and businesses can preserve cash for day-to-day operations.
The difficulty arises when the same thinking is applied to very different investments. I regularly see shorter-term borrowing used to fund projects expected to deliver benefits over decades. New livestock housing, grain stores, yard developments and environmental infrastructure often have useful lives far beyond the term of a typical machinery finance agreement. Trying to repay those investments too quickly can place unnecessary pressure on cashflow.
Equally, long-term borrowing for short-term requirements can create its own challenges. Seasonal cashflow pressures, input purchases and temporary working capital needs generally require facilities designed for that purpose, not debt that remains long after the original need has passed.
Farm borrowing often builds gradually over time. While each individual decision may have been right at the time, the overall funding structure can become less effective as the business evolves.
I recently worked with a large multi-enterprise farming business that illustrates this point. The business was fundamentally strong and supported by significant assets. The challenge lay not with its operations, but with the way borrowing had evolved over the years. A combination of shorter-term facilities had been used to fund investments with much longer-term benefits, while other commitments had accumulated as the business grew. Together they were placing considerable pressure on cashflow and limiting financial flexibility.
Following a full review, the funding structure was reorganised so that each facility better reflected the purpose of the borrowing. The result was a reduction of around £150,000 per year in interest and capital repayments. This significantly eased cashflow pressures and gave the business greater financial flexibility.
That outcome was not driven by a lower rate alone, but by ensuring the borrowing structure matched the business and the lifespan of the assets being funded.
Regularly reviewing borrowing arrangements with professional advisers can reveal opportunities to improve working capital, smooth cashflow and strengthen financial resilience. The objective is not always to borrow less, but to ensure that borrowing is working as effectively as possible.
This becomes particularly important during periods of change. Interest rate movements, tax reforms, succession planning, diversification projects and environmental schemes all have the potential to alter a business’s financial requirements. Borrowing arrangements that worked well five years ago may no longer be the right fit today.
In some cases, restructuring existing facilities can release pressure and create flexibility for future investment. In others, it simply provides reassurance that the current arrangements remain fit for purpose.
When finance is structured correctly, it supports growth and resilience. When it’s not, even good investments can create unnecessary pressure.
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