BUSINESS
Nigel Ecclestone, arb finance manager at Arkle Finance, examines the
importance of specialised finance options to the modern forestry industry.34 AUGUST 2019 FORESTRYJOURNAL.CO.UKW
ITH a lifespan that’s typically
measured in decades, or
even centuries, trees outlive
governments, as well as
political and economic crises.
Yet the flipside is they continue to grow –
and continue to need maintenance – in both
good economic times and bad.
As a result, the forestry sector is one
which faces a unique set of challenges
during the current Brexit uncertainty, with
robust demand but stiff competition as
well as rising cost pressures. The industry
is responding in kind by innovating and
introducing more environmentally friendly
machinery and equipment.
Against that backdrop, new entrants are
fighting hard for market share and existing
companies are under constant pressure to
keep up with their rivals.
However, the challenges are stark. Official
ONS data shows output in the agricultural,
forestry and fishing sector as a whole fell
by 1.8 per cent in Q1 2019, and ambitious
forestry firms can struggle to access the
finance they need to grow. The forestry
sector tends to be almost completely
overlooked by high-street lenders, making it
harder for the industry’s smaller players to
fund their growth plans.
This lack of interest among conventional
lenders has prompted a number of specialist
lenders to emerge, who tend to be more
flexible and have products specificallytailored to the needs of the forestry sector.
As well as a deeper understanding of
the sector and the equipment involved,
specialist lenders like Arkle Finance
typically offer finance from £5,000 to
£500,000 (and beyond, where applicable),
which is secured against the equipment,
across fixed-term leases, operating leases
or the more traditional hire purchase – all of
which can be tailored to the equipment.
Having access to such a wide range
of finance options can provide useful
flexibility for small and medium-sized
forestry businesses which can face sudden
and unexpected capital expenditure
requirements.
Coupled with the right advice, having the
right finance can smooth out financial peaks
and troughs and assist in accurate forward
budgeting (something that all good forestry
businesses should have in place). Once the
borrower has selected the equipment they
want to purchase and agreed a price,
they will need to show the lender key
information about the equipment as
part of their loan application.
This will typically include the
planned use of the equipment,
preferred repayment strategy
(how the borrower plans to
pay off the loan in full),
as well as supporting
company and/or
personal financialHow forestry finance
can help grow the sector
information.
Any ambitious business in the forestry
sector should keep a range of funding
options in its locker, as they provide for
managed growth across the business
by aligning the cost of acquisition to the
usage and revenue-earning potential of the
equipment, paying down the commitment
through small, affordable, monthly
repayments.
Specialist forestry finance can be tailored
to the borrower’s funding requirements.
While some businesses may prefer to
own the equipment outright through hire
purchase, others may prefer a fixed-term
lease, enabling them to use the machinery
without ownership in exchange for a number
of monthly payments.
One major benefit of a fixed-term lease is
that the borrower isn’t required to pay VAT
up front and the majority of transactions
require a much smaller deposit than a hire
purchase. This enables businesses to
better manage their cash flow, with
VAT collected with the monthly rental
amounts, which in many cases tend
to be lower than the repayments
under a hire purchase agreement.
Forestry finance is crucial for
any business in the forestry
sector looking to expand
its horizons and grow its
bottom line in the current
climate.Nigel Ecclestone, Arkle Finance