Agricultural mortgages and farm loans: your finance options

An agricultural mortgage is a long-term loan that’s secured against your farmland or farm buildings. The funds from an agricultural mortgage will typically be used to buy, improve or refinance the property owned by your farming business. 

Agricultural finance and farm loans are similar but cover wider agricultural needs. A farm loan might be used to purchase farming machinery, buy new livestock, purchase fertiliser in bulk, cover seasonal costs or invest in the overall growth of the business.

Mortgages and loans are both types of debt finance, but they work in different ways. Which suits your specific farm business will depend on the intended use for the money.

Rates and terms can vary greatly between lenders, so it’s sensible to do your homework and liaise with your advisers before applying for any kind of debt finance. 

Let’s dig a little deeper into the ways you can use agricultural mortgages and loans.

What’s an agricultural mortgage?

An agricultural mortgage is a type of commercial mortgage that’s designed specifically for farms and agricultural businesses. It’s a way to borrow money to purchase or refurbish property.

Using an agricultural mortgage, you can access funding to:

• Buy land or a farm: The funds can be used to purchase an existing farm, or you could purchase land that’s adjacent to your existing farm to expand your farming operations. This is a great way to expand, increase yields and build up capital in the business.

• Improve buildings: A mortgage could be used to fund construction of new farm buildings, or to upgrade other buildings and structures. For example, you could build larger grain stores, increase your housing for livestock or enhance the environmental compliance standards of your existing premises.

• Refinance existing debt: If you have existing debt in the business, the mortgage could be used to consolidate short-term debt, merchant credit or overdrafts into a structured long-term mortgage. This can result in more manageable monthly repayments and lower interest rates.

• Buy out a partner or family member: Funds from the mortgage can also be used to provide the pay-out for retiring family members or business partners who intend to leave the business. Having access to this additional capital makes succession easier and keeps the business and your agricultural property intact.

• Diversify the business: The mortgage can be a good way to finance a new commercial venture involving farm property. For example, you could convert existing barns into holiday lets, farm shops or sites for renewable energy technology.

Agricultural mortgage vs a standard commercial mortgage

An agricultural mortgage is tailored specifically to the funding needs of a farming business.

Agricultural mortgages will typically have longer repayment terms (sometimes up to 25 years), flexible repayment schedules that are aligned with seasonal cash flow and specialist valuation by an agricultural surveyor. The surveyor will account for land quality, agricultural earning potential and land-use restrictions like positive covenants (such as obligations to maintain boundary fences or drainage) when defining the overall value of the farm. 

In contrast, a standard commercial mortgage covers conventional premises like offices or warehouses. This kind of commercial mortgage will usually feature shorter loan terms, fixed regular repayments and underwriting based on standard commercial property valuations and predictable trading profits.

How an agricultural mortgage works

So, we know what an agricultural mortgage is, but how does this type of mortgage actually work in practice when you’re a farmer or farming business?

To secure the loan, the lender takes legal security over your land or property – in other words, the real estate serves as collateral if you don’t meet the repayments. To purchase a property, you’ll typically need to provide a deposit upfront. The size of your deposit determines the Loan-to-Value (LTV) ratio, which is the total mortgage amount expressed as a percentage of the property's overall market value. Lenders evaluate this LTV ratio along with the farm's projected income and cash flow to determine how much they can safely lend.

How do interest and repayments work?

When structuring the loan, you can choose between different interest rates and repayment setups to match your farm's cash flow. 

There are two key types of interest rates:

• Fixed interest rates keep your repayments predictable for a set period. If inflation and the Bank of England interest rate go up, the interest on your mortgage remains the same.

• Variable interest rates fluctuate in line with market changes, meaning your repayments can go up or down. This can have a significant impact on your cash flow.

There are also different types of repayment:

• Capital-and-interest structures gradually pay off both the loan balance and the interest over time

• Interest-only structures allow you to pay just the interest during the term, leaving the original loan amount to be repaid at the end. 

Because farm land is a long-term asset, these mortgages often offer extended repayment terms over many years to keep your ongoing payments more manageable.

What do lenders look at when assessing your mortgage application?

Once you’ve applied for an agricultural mortgage, your chosen lender will review your application and assess the risk level of lending to your farming business.

Generally speaking, the lender will review:

• Your income and costs: The lender will want to see evidence of your revenue levels and the income you’re generating from your business. This will be balanced against the operational expenses you’re incurring to buy feed and fertiliser, maintain machinery and provide fuel for your vehicles and other heavy equipment. 

• Your credit history: Factors like your business credit score, payment history and debt-to-equity ratio will be reviewed to get an idea of the farm’s overall credit profile. This helps the lender assess your creditworthiness and lending risk level.

• The size of your deposit: To secure the mortgage, a deposit will be required. This lump sum of cash secures the loan, with deposit amounts typically being in the range of 10% to 30% of the overall cost of the property. However, deposit amounts may vary by lender so it is important to check requirements with each lender

• Business experience: Lenders will feel more confident in you as a borrower if you have an existing trading history and proven experience in the farming industry. An established, viable farming business is more likely to be approved for a mortgage than a brand-new farming startup where the owner has no experience of the sector.

• A clear business plan: It’s vital to have a business plan that shows how the new property or building renovation will expand your farming business. Having a plan with defined objectives, budgets and forecasts helps to boost the lender’s confidence in your underlying business strategy and future revenue generation possibilities. 

Agricultural mortgage rates and calculators

The interest rate you pay on your mortgage has a significant impact on your monthly repayments and the overall sum you repay to the lender.

There is no single published farm mortgage rate in the UK. The rate you’ll be offered will vary from lender to lender, and will be tailored to your farming business’s creditworthiness, risk rating and your overall ability to service and repay the mortgage.

As such, it's imperative to research the mortgage market and to compare rates from different lenders. This helps you make an informed decision about which lender to choose, while understanding the short-term and long-term impacts on the farm’s repayments and cash flow.

How do repayment calculators work?

Some lenders will have repayment calculators on their website, allowing you to input the size of your desired mortgage and see what the available interest rates and repayments would be.

You will generally be asked to input the mortgage amount, the term of the loan and the interest rate. With this information, the calculator can give a ballpark figure for your monthly repayments.

Here’s an example of a calculator from R&BS.

These calculators should only be used as a guide, as the outputs from these calculators will not take into account the specifics of your business or current financial situation. 

Farm loans and other ways to fund a farm business

An agricultural mortgage is not the only option when you need external finance to fund your farm’s growth and expansion. 

Farm loans, lines of credit, agricultural asset finance and government grants are alternative funding routes when your plans don’t involve property and renovation.

Let’s look at these four options in more detail.

1. Farm loans and working capital loans

For larger operational purchases, farm loans and working capital loans offer additional capital to bring your strategic goals to life, or replace essential equipment and vehicles. 

You can check how much your farm could borrow with the Funding Circle Loan Calculator.

2. Lines of credit

Short-term credit facilities, like Funding Circle’s  Flexipay line of credit or Cashback business credit card, are fast and straightforward ways to bridge seasonal cash-flow gaps. Credit can be used to fund operational expenses like seed, fertiliser, feed or fuel and rebalance cash flow.

3. Agricultural finance (asset finance)

Agricultural finance uses hire purchase or leasing options to let you acquire machinery, tractors or infrastructure by spreading the overall costs over time. The loan is secured against the equipment itself, which is a great way to preserve your cash reserves

4. Government grants and incentives

Non-repayable grants or subsidy schemes – such as the Farming Equipment and Technology Fund or the Sustainable Farming Incentive – provide direct funding for investing in sustainable practices, upgrading your  farming technology or diversifying your wider business strategy.

Combining different finance sources 

A combination of a mortgage, government grants, working capital loans, credit facilities and agricultural finance could be combined to help pivot the farm in a new business direction.

For example, you could turn unused farm outbuildings into holiday lets to bring in a new revenue stream during the summer season. Or add a farm shop to the business to sell your produce directly to local customers and tourists, sidestepping the need to sell to the big supermarkets.

Government-backed lending and the Growth Guarantee Scheme

Government grants are not the only state-backed funding route. The Growth Guarantee Scheme (GGS) is a loan scheme run by the British Business Bank.

If you need a working capital loan, you can apply for the GGS via Funding Circle and borrow from £25,001 to £250,000 on terms of 2 to 6 years. The Government Scheme is subject to eligibility. 

The UK Government guarantees part of the loan, but be aware that you may be asked to supply a personal guarantee (at the lender’s discretion) against a GGS loan. A soft credit check will take place when you initially apply for a Funding Circle loan, but this does not impact your personal credit score. Only a hard credit check will do this. Note, the Schemes guarantee is to the lender and not your business. You will remain 100% liable for this loan. 

Who can apply for finance with Funding Circle?

We believe in supporting UK farmers to meet their funding and strategic goals.

To apply for funding with Funding Circle, you must:

• Run your UK-based farm under a limited company or LLP legal structure

• Have a trading history of at least 12 months or more

• Meet our turnover requirements for your chosen finance product. 

Every lender has different eligibility criteria. Specialist lenders do offer mortgage options for farms trading under a sole trader or partnership legal structure.

How Funding Circle can help fund your farming business

Funding Circle doesn’t offer agricultural mortgages. But we do have several flexible finance options for UK farmers that want fast, simple access to external funding.

We offer:

• Agricultural finance to help hire or lease the equipment you need to grow (provided through a panel of trusted finance partners)

• Growth Guarantee Scheme loans for investment in your farming business

• Working capital loans to expand your operational capital

• Flexipay and Cashback cards to stretch out your cash flow

As with all finance products, lending amounts, terms and interest rates can vary. So, be sure to do your homework before applying. It’s also good practice to consult with your accountant, legal adviser and financial adviser before signing on the dotted line. 

FAQs

What is an agricultural mortgage?

An agricultural mortgage is a loan that’s designed to allow your farming business to buy property or refurbish and extend existing property. 

How does an agricultural mortgage work?

You borrow money from the mortgage lender, having made a deposit or around 10% to 30% of the full loan amount. Interest is added to the amount you owe (at an agreed fixed rate or variable rate) and you pay back the loan through monthly instalments. 

What affects agricultural mortgage rates?

When you apply for an agricultural mortgage, the interest rate you pay will be influenced by factors such as your farm’s creditworthiness, trading history and current financial position. Rates can also be influenced by inflation and the Bank of England interest rate. 

How do I use an agricultural mortgage calculator?

Many providers of agricultural mortgages will offer calculators to help you gauge how much you can borrow and how much your monthly repayments might be. These will be hosted on the providers' websites. 

What types of farm finance are there?

Asset finance, working capital loans, lines of credit and government-backed grants and loans are all finance options that are available to farmers and agricultural businesses. 

Can I get a business loan for agriculture?

Yes, business loans for funding your farming and agricultural business are available from many lenders. Funding Circle offers business loans of between £10,000 and £750,000 for established farms that use a UK-based limited company or LLPs legal structure. 

Can I get finance for farm machinery?

Yes, asset finance for farm machinery (sometimes called agricultural finance) is available. Funding Circle offers agricultural finance options to help hire or lease new equipment. 

Disclaimer

17/11/26/26 – While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.