Agricultural Finance Terms A–Z
Understanding the language of agricultural finance helps you compare offers accurately, ask the right questions, and avoid costly misunderstandings. The terms below are arranged alphabetically for easy reference.
| Term | Plain-English Explanation |
|---|---|
| Annual Investment Allowance (AIA) | A UK tax relief providing 100% first-year capital allowance on qualifying plant and machinery, including agricultural equipment financed on HP. Current limit: £1 million per year. |
| APR (Annual Percentage Rate) | The true annual cost of borrowing, expressed as a percentage. APR accounts for the reducing balance of the loan and is the correct figure to use when comparing finance offers. Approximately double the equivalent flat rate. |
| Asset Finance | Finance secured against a specific asset - such as a tractor or combine harvester - rather than against general business assets or property. Agricultural HP and lease are forms of asset finance. |
| Balloon Payment | A lump sum due at the end of a finance agreement, larger than regular monthly instalments. Reduces monthly payments during the term. Requires refinancing, sale or repayment at term end. |
| Credit Broker | A firm that introduces borrowers to lenders without itself providing finance. Doulton Bridging Finance acts as a credit broker, not a lender. |
| Farm Business Tenancy (FBT) | A tenancy agreement for agricultural land in England and Wales under the Agricultural Tenancies Act 1995. FBT holders can generally access agricultural equipment finance on the same terms as owner-occupiers. |
| Finance Lease | A lease under which the lender retains legal ownership of the asset throughout the term, but the lessee has full use and bears the risks and rewards. Full lease rentals are typically deductible against trading income. |
| Flat Rate | An interest rate calculated on the original amount borrowed, not the reducing balance. Flat rates make borrowing appear cheaper than APR - always convert to APR for like-for-like comparison. |
| Hire Purchase (HP) | A finance agreement under which the borrower pays instalments to the lender and gains ownership of the asset at the end of the term, usually on payment of a nominal option fee. Capital allowances (AIA) can be claimed by the borrower. |
| Operating Lease | A lease under which the lender retains risks and rewards of ownership, and the lessee pays for use of the asset. Usually shorter than the asset's useful life. Off-balance-sheet under some accounting standards; off-balance-sheet under older UK GAAP. |
| Personal Guarantee (PG) | A commitment by a director or partner to personally repay the finance if the business defaults. Commonly required by lenders for smaller limited company agricultural finance applications. |
| Repayment Holiday | A period at the start (or during) a finance agreement when no payments are required. Often used in seasonal agricultural finance to align with low-income periods. |
| Sale and Leaseback | The sale of an owned asset to a finance company, followed immediately by a lease of the same asset back to the seller. Releases capital from owned equipment while retaining operational use. |
| Seasonal Repayment | A repayment structure in which payment frequency or amount varies to match the seasonal income pattern of the farming business - for example, reduced payments in spring and larger payments at harvest. |
| Settlement Figure | The total amount required to repay and close a finance agreement on a specific date, including any early redemption charges. Always request a formal settlement figure before refinancing. |
| Writing Down Allowance (WDA) | A capital allowance claimed annually on the reducing balance of plant and machinery where AIA has not been used or has been exceeded. The standard WDA rate for most plant and machinery is 18% per annum. |
Common Abbreviations in Agricultural Finance
AIA
Annual Investment Allowance - the main capital allowance relief for HP-financed equipment.
APR
Annual Percentage Rate - the true cost of borrowing, used to compare finance offers.
FBT
Farm Business Tenancy - the most common form of agricultural tenancy in England and Wales.
FIF
Farming Investment Fund - DEFRA's main capital grant programme for farm equipment.
HP
Hire Purchase - the most common form of agricultural asset finance, leading to ownership.
PG
Personal Guarantee - a director's personal commitment to repay business finance if the company defaults.