Stricter environmental and climate goals, combined with societal demands for more sustainable food production, require investment. For agricultural entrepreneurs, finding suitable business financing is quite complex. What are the latest trends, and what should you, as a farm, consider to successfully finance your future plans?
The most important development is that sustainability has become the new standard in the financial sector. Banks view companies that actively invest in sustainability as the businesses of the future, with the lowest risk. This means that when applying for a loan, you need to prioritize your plans for innovation and transition. Financiers assess applications partly based on the submitted sustainability plan. This is reinforced by the movement toward "true value," in which financial institutions factor in the hidden costs and benefits of nature, climate, and animal welfare. Moreover, a growing number of loans offer interest rates directly linked to achieving specific sustainability goals, giving farmers a strong incentive to be ambitious.
No healthy figures, no financing
Regardless of where you seek capital, the basic assessment remains the same: the loan must be repayable from operating cash flow. In addition to complete historical financial statements, always provide a realistic multi-year forecast that reflects future opportunities and the investment's impact. Financiers want to see a healthy balance sheet, with sufficient solvency (equity, ideally 25%-40%) to absorb risks. Don't forget liquidity, the ability to meet short-term obligations. Finally, the financing structure must adhere to the so-called "Golden Balance Sheet Rule": ensure that long-term investments (land and buildings) are financed with long-term capital (mortgages), while short-term assets (inventory) are suited to short-term financing.
The role of subsidies
In the agricultural sector, there are specific instruments that can significantly streamline the financing process. First, there are government regulations. Make sure you consider all available tax incentives (such as MIA/Vamil and EIA) and specific subsidies (for example, for young farmers) when determining the total financing mix. In addition, Agriculture Guarantee Credit (BKL) lower the threshold for banks, because the government guarantees part of it. Secondly, it is important to arrange the collateral properly. Be prepared to provide a business mortgage on agricultural land, for which a current and independent valuation report is required. If you choose private capital, it's a good idea to carefully and legally document all agreements, including those with family or friends, to prevent future misunderstandings or conflicts.
Before submitting a final financing application, it's wise to check the Environmental List and Energy List: Check whether the investments are eligible for MIA/Vamil or EIA. This may result in an immediate tax benefit.
Due to the complexity and often short application periods for these schemes (especially the POP subsidies), it's advisable to consult an agricultural advisor or subsidy expert. They know exactly which schemes are available and how to submit the application.