6 FARM NEWS
FEB/MAR 2019 • farmers-mart.co.uk
Q&A WITH MARK SUTHERN
Barclays National Head of Agriculture
What’s driving farm borrowing
at present? Is Diversification
a key reason farmers are
approaching you?
We regularly see requests from clients
that want finance for diversification pro-
jects. Their situations vary. In some cases,
they are looking to add an extra business
to help increase revenues or make their
businesses more resilient. In other cases,
it can be part of family business planning,
where the family realises that the farm may
not support all of the future generation, so
they want to add additional businesses to
make inheritance work more fairly.
We are seeing an increasing number of
clients looking to make off-farm investments
– ones outside their core farming business.
This can help avoid their wealth being too
concentrated in one business area. Exam-
ples include commercial property, office
space and tourism projects. Often these off-
farm investments are ones where the client
has a low emotional attachment, and may
aim to sell them at a later date.
Low interest rates and strong balance
sheets can help facilitate such investments. At
Barclays, we have developed and launched
our Rural Project Loan for this reason. It effec-
tively allows a farm or estate to leverage its
asset base and take funding, interest only until
the diversification is up and running and can
start to meet capital repayments.
However, it may be helpful to set this in
context. Overall demand for debt within UK
agriculture is actually relatively steady at
present – up around 1.6% year on year to
the end of June 2018. This probably reflects
relatively strong agricultural commodity
markets for the last two years, reducing the
need for borrowing, and caution as Brexit
approaches. We think some farm owners
may be postponing investment decisions.
Can you give a couple
of examples of projects
(anonymous, of course)
you have helped fund
which could be classed as
diversification or at least a
divergence from the farm’s
traditional income stream?
We literally see and fund every type of
on-farm diversification you can imagine –
from sites for posh camping, or “glamping”,
to industrial units, and from farm shops to
woodland burial sites, and from equine
businesses to crop processing
If the business plan shows it will be sus-
tainable and viable, the farmer has the right
skills to operate the business, or will hire
them in, and the figures stack up, we will
look to support clients in developing their
business.
We also frequently see farms diversify-
ing within agriculture. Perhaps the most
common type is investment in poultry
units, either for eggs or broiler birds. This
can provide an additional revenue stream
for a farming business, and one that is less
affected by the weather.
As a lender, what are you
looking for in an application?
of sales do you need to hit break-even and
how do they measure up against norms
in the industry. Depending on the project,
these KPIs can include things such as aver-
age customer spend, visitor numbers and
occupancy rates.
Finally, we want to see evidence of the
skills and experience needed to run and
manage the project without impacting the
existing business, or how the owner plans
to hire these in.
Conversely, where might
an application fall down
or be refused?
For a diversification project, we need to
see a sound and reasonable business plan,
based on solid assumptions backed up by
some market research. Location is key for
many projects, and in those cases farmers
should be looking to fill the gaps in demand
in their local area.
Clearly if someone in the family has a
particular skill or interest, they should look
to capitalise on that in the more niche are-
as, but most projects need the right location
to further enable success, especially if you
are expecting your customer base to come
to you.
The business plan should have an outline
of the project and include financial projec-
tions which run for as long as it takes for
the project to become cash positive, which
should usually be around two to three
years.
There should also be a marketing plan,
based on sound research and assumptions.
Very often this can be commissioned from
a professional – someone that can give a
great insight into different ways of market-
ing and reaching your target market.
One additional point is that when reviewing
a diversification project, we always like to see
a “plan B”. What will the client do if the project
does not perform as expected? Will it be sold,
or wound down, and how would this work? Business is business as the phrase goes.
It’s important that business owners lead
with their head not just their heart, and
grasp the figures. Something that feels like
a great idea, might not actually stack up
financially – so business plans that are
over-exaggerated or over ambitious in
the first couple of years might well make
a project look great, but will soon run into
problems if the KPIs cannot be delivered.
It is always great to lend money to a cli-
ent who is passionate and has ambition, but
if they forget the detail and write a business
plan that is unrealistic or undeliverable, or
lacks depth, this is likely to come out in the
analysis we do.
What are the absolute ‘must-
haves’ farmers should include
in an application for lending? Can you advise on the process
you recommend farmers
should take if they’re thinking
about a diversification project
that will require lending? i.e.
in what order should they
do things and at what point
should they engage you?
First, we need to see an outline of the
project. There must be a clear marketing
plan and analysis of the market size. If you
are diversifying within agriculture, a con-
tract of supply is vital. There must also be
clear and accurate itemised costs that will
be involved.
We also like to see what the key perfor-
mance indicators (KPIs) will be: what level
We hear a lot about affordability
from the banks today - is that
your number one criteria?
We are focused on having long-term, pro-
ductive relationships with clients, so while
the ability to service debt is a key factor,
it is not the only one. We also emphasise
the need for a sound and realistic business
plan, and the ability of the people involved
to deliver that plan. What skill sets do they
have, what training might they be taking or
what skills are they going to hire in? Under-
standing people and their ambitions is at
the heart of our approach.
We would suggest engaging with us from
an early stage and taking some strong in-
dependent advice – we might even be able
to put them in touch with some specialists
who can help develop the project. We have
a huge client base and a huge network of
agricultural managers covering the whole
country, so the chances are we will have
experience of similar projects, and we can
draw on those experiences to help farmers
developing diversification ideas.
Do you have any top tips
for securing the right
finance package for their
diversification project?
Be realistic with your business plan and
figures, conduct market research and com-
bine that with a good marketing plan.
We have a piece in the magazine
about the next generation
developing diversifications to
support their family business -
funding it will always be tricky
with little collateral built up. Do
you have any advice for them or
examples of how you help the
younger generation who perhaps
don’t have the assets available
to secure funding against?
Sometimes it is best to start small and
build up a track record. This can be better
not only for the bank but perhaps for the
family, too.
It’s worth being aware of other financial
products like confidential invoice discount-
ing, allowing a business to be paid right
away after issuing an invoice. This can
help push cash into a business, allowing it
to grow faster than with just a traditional
overdraft.
It is also important to have realistic
expectations about how the business can
grow – remember that most apparent over-
night successes are in fact usually years in
the making. What a farm provides – which
many aspiring entrepreneurs don’t have
– is a base, space and all those bits and
pieces of equipment the next generation
can utilise.