An Agricultural Property Loan for a Restaurant

It is easy to assume that we only lend to farmers, but there are many types of borrowers that may be suited to fit our criteria. As long as there is an agricultural connection and/or land involved, we are happy to consider most loan applications. For example, our South West Customer Relationship Manager, Tracey, recently dealt with an agricultural property loan involving a restaurant.

Why was the agricultural property loan required?

The borrowers had owned and run a restaurant for many years in Devon and, alongside this, they reared their own pigs and sheep which were used to supply the restaurant. The couple made a good team at the restaurant, with one as head chef and the other running the front-of-house operations and business administration.

However, the property where the restaurant was based was in need of renovation, which would involve closing the restaurant for several months. The restaurant was situated on the ground floor of the building, with accommodation above. The owners lived in the above accommodation,  but it could only be accessed by an external staircase which was treacherous in the winter months and not ideal for much of the year.

The owners had intended to enclose the staircase, but over the years they had not got around to this due to the impact on the restaurant while the work was taking place. However, as the couple were now getting older, the need for this work to be completed was more pressing.

The owners wanted to take the opportunity of the restaurant being closed to move the staircase inside and then renovate the upper floor into B&B accommodation.

At the same time, they wanted to apply for a change of use for an existing barn they owned from a letting barn into a residential property. The intention was to then sell this barn property.

Why was UK Agricultural Finance able to help?

The borrowers would need to close their business while completing the property renovations,      meaning they had no income during this time. Therefore, most high-street lenders were unwilling to consider their loan application. The traditional lenders also had concerns regarding the age of the borrowers and their expected repayment plan.

However, we are able to offer borrowers a selection of repayment options including interest-only and rolled-up repayments, along with delayed repayment plans if required. Based on this, we were able to accept the repayment vehicle of the sale of a letting property that was part of the security.

This could have taken several months to sell, which is why, in part, many traditional lenders were unable to cater to this loan requirement. As it happens, a buyer was found quickly and the loan was repaid almost as soon as the renovations were completed.

As our loan application processes are more flexible, we are able to consider loan applications on an individual basis and consider the nuance of a borrower’s situation. In this case, we were able to see that the borrowers had been running a highly successful business for many years. They were high-net-worth clients but were currently without an income.

Additionally, their security was unencumbered, and they didn’t have any loans or debts with anyone. This meant they had very low outgoings, so even with the restaurant closed, they would be able to sustain themselves for the duration of the project and the loan.

What was the exit strategy for this agricultural property loan?

The borrowers felt that it was time to reduce their hectic workload, but with no children to leave the business to and only pensions to live on, they intended to develop and sell parts of the estate. This included the sale of the letting barn, which would facilitate their business strategy going forward.

The plan was to use the sale of the letting barn as repayment for the loan. This exit strategy ended up working out much quicker than expected, with the planning approval for change of use being approved quickly. This allowed the borrowers to sell the barn as a residential property and once on the market the barn sold quickly for around £450K, which was well above the loan value.

The original loan period had been agreed at 3 years, but the quick progress on the planning approval sale and renovations meant the loan was repaid sooner. In the end, the sale of the barn property then coincided with the completion of the renovation works to the house/restaurant.

Once the renovations were complete, the borrowers were able to re-open the restaurant and continue to trade successfully, including the addition of their B&B facilities on the upper floor. The sale of the barn had allowed them to downsize their business operations, which tied in with their longer-term business strategy.