The number one barrier for new entrants is accessing finance. Robyn Vinter speaks to bankers and advisers to get their tips
New entrants often complain of how difficult it is to access all-important finance. Even bankers admit that it can be the biggest hurdle new entrants have to overcome.
“There’s no easy answer unfortunately at the moment,” says Roddy McLean, agricultural manager at NatWest.
“Even the reforms and additional support they’re going to get with the next round of the CAP isn’t going to be the magic bullet that suddenly makes things easier for them. It’s always going to be difficult just by the nature of the animal that farming is.”
Allan Wilkinson, head of agriculture at HSBC, agrees.
“This is something that has been a topic for a long time, but actually is really key, especially at the moment,” he says.
New entrants to farming can struggle more than start-ups in other businesses. The average loan for a non-farmingstart-up in the UK is around £5,000, but because of the high costs in agriculture, that sum might not stretch very far for someone starting a farming business.
Young people can find it difficult to prove their business acumen in all industries, but in farming, banks deem it ever more important to prove a new entrant’s business plan can succeed and ensure they have all the required skills because of the large sums of moneyinvolved.
- Start small
- Have a solid business plan
- Work with experienced farmers
- Generate capital
- Prove management skills
However, despite the obvious challenge of lack of experience running a business there are a number of things new entrants can do to help them get a foothold in farming.
1. Work with experienced farmers
“The older ways of [new entrants] going through established processes such as tenancies, are actually a really hard way of getting established,” says Mr Wilkinson.
Instead, new entrants should be looking at less common ways of getting involved in farming.
“We’ve seen recently a couple of cases where the food chain have helped people get established – that might be in poultry or in pigs – but I’ve also seen where existing farm businesses who probably have no successor have somebody really good who’s if you like, the next generation, but has no relationship with the family,” says Mr Wilkinson.
“They’ve established a partnership and built up a working relationship as partners so that slowly but surely the new entrant has built up capital through the money that they’ve earned or through some profit share or other means in that partnership.
“Some people would think that’s not quick enough, but in those cases the new entrant has become the farmer on that holding.”
Mr Wilkinson says in the instances he has seen, which he admits are a small number, it has worked well for both parties, but it does need a fairly strong business to start with and a good working relationship, he adds.
This can be a challenge for new entrants, especially those with no family ties to agriculture, even with a good degree or diploma under their belt.
2. Have something to invest
Having existing capital to invest and get the ball rolling can also be crucial for new entrants.
“It’s a capital intensive business, land values are high, even the cost of a tenancy and equipping a farm is high so if they’re able to come with some capital behind them or get guarantees from existing farming parents, that is helpful,” says Mr McLean.
3. Build a track record
The problem for many young farmworkers is lack of a track record in business – one of the main elements looked at by banks when deciding to whom to lend.”It is a problem at times because we do base a lot of our decisions on track record,” says Oliver McEntyre, Barclays agriculture manager.
“We’d happily accept a track record of someone who’s been in farm management but we have to see some kind of management in the business not just the management of the farm.”
4. Start small
One way for new entrants to prove they have the skills needed to run a farming business is to start small. Wannabe farmers should not expect to be able to start their dream enterprise straight away and should start with a stepping-stone, eventually building to the business they would like to run.”Start on a small scale, develop some expertise and a track record, have a qualification perhaps – this will all add some weight to the proposition,” says Mr McLean.
Mr McEntyre agrees: “My advice would be to start out small, maybe rent that first field – those first 20 ewes for example – and just build it up. After three years that dedication will give you a track record that we’d happily lend money against.”
5. Planning is key
Make sure you have a strong business plan and know your business inside out, says Mr McEntyre. Having a solid business plan and understanding how the business works is key to appearing professional and knowledgeable.