On the back of the expansion to the Farming Recovery Fund, Defra Secretary Steve Barclay said the NFU鈥檚 calls for a government-backed loan to support farming businesses during what has been one of the most challenging periods for the industry 鈥樷��.
The FBIL (Farm Business Investment Loan) scheme is one of a number of measures proposed by the NFU, including lessening the reductions in direct payments that will be made this year to support farmers affected by the bad weather. The scheme is modelled on the coronavirus business loans.
These loans would be simple to apply for, and for banks to approve, and would provide significant help with cashflow to support farm business resilience and investment across the UK.
How would the loans work?
The central feature of these FBILs would be a low, fixed-rate of interest for farm businesses and an initial 12-month capital repayment holiday, with government covering the residual interest with lenders. This would enable many businesses not only to weather the current, highly-volatile commercial conditions, but also to invest in their businesses to become more resilient in future.
The significant cash injection FBILs could provide, at a comparatively low cost to government, may mean the difference between businesses remaining commercially viable or not over the next 12-18 months.
It will help farmers with their cashflow, allowing them to invest in their businesses according to their individual circumstances, so they can continue to produce great British food and contribute to our national food security at such a critical time.
As an illustration of the financial profile of the loans, if 30,000 businesses apply for a 拢50,000 loan at a fixed interest of 2.5% over 6 years, this would equate to an immediate cash injection into the industry of 拢1.5bn. The cost to government (assuming current commercial rates of around 7%), would be just over 拢300m in total interest payments, so an average of 拢50m a year.
The cost to borrowers in interest over the term of the loan would be around 拢3,750 each.
These figures are illustrative only, but give a sense of how such a scheme might work and, given the likelihood of interest rates falling in the months and years ahead, the cost to government could be significantly lower.