A young successor’s guide to financing the farm

Kevin Connolly

Generational renewal depends on young farmers being willing and able to step into ownership and management – and on them being able to finance the investments that go with that step. Sensible planned use of finance can allow a viable successor to move earlier, invest smarter and build a sustainable career on the farm. Poorly planned finance does the opposite: it ties up cash, limits options and can undermine family confidence in the transfer.

Start with the farm, not the loan

The first mistake many people make is to jump straight to “how much will the bank give me?” instead of asking “what kind of farm business do we want to run here over the next five to ten years?”. Finance should follow the farm plan, not lead it

For a young successor, that means stepping back and looking at the whole system:

• Current performance – output per cow or hectare, cost of production per litre or kg, and net margin
• Future direction – is the priority expansion, efficiency, labour saving, environmental compliance, or quality of life on the farm?
• Family and succession – who depends on the farm for income now and who will depend on it when succession takes place?

A simple written plan that captures where the farm is now, where you want it to be in five years, and what investments are needed in between, is the right starting point. That plan then drives the scale and timing of finance, rather than the other way round.  The Teagasc My Farm- My Plan business plan template (available to download here) is used to simply document how a farm business is to develop over a five year timeline.  It is also used in the application process for a number of tax reliefs and incentives.

What are you really investing in?

On most family farms there is never just one “best” investment; there is a list.  New housing, slurry storage, roadways, milking facilities, calf accommodation, labour-saving technology, land purchase, off‑farm investments – all can have a case at different times.

Before borrowing, ask three basic questions about each proposed investment:

1. Is it necessary?

Some investments are critical to keep the farm operating or compliant (for example, slurry storage or calf housing to meet nitrates or welfare rules).  Others are about improving efficiency or lifestyle, and some are largely optional.

2. Will it pay its way?

An investment that improves margin per animal or per hectare – by lifting output or lowering costs – is usually easier to justify than one that just increases turnover. You do not need a full economic projection, but you should be able to explain how it will affect cash in and cash out over the next few years.

3. Is the timing right?

Every major investment today closes off some options tomorrow. Ask whether committing to this project now will limit your ability to make a more important investment in a few years’ time, especially around land or core infrastructure.

Policy‑driven compliance investments – for example additional slurry storage – may not generate extra profit but still sit at the top of the priority list because the farm cannot operate legally without them.  In those cases the challenge is to finance them in a way that does not over‑stretch the business.

Understanding repayment capacity

Repayment capacity is simply the farm and household’s ability to meet all existing and new loan repayments, every year, with a sensible margin for shocks. Lenders focus heavily on this, and so should you.

A practical way to think about it is:

• Start with net cash generated by the farm – cash receipts minus cash payments
• Subtract “non‑operating” cash demands – existing loan principal, lease payments, tax
• Subtract non‑farm demands – living expenses, pensions, other personal commitments.
• Add in any regular non‑farm income that genuinely helps support repayments.

What is left is the free cash potentially available to service new loans.  Advisors and banks will then apply a safety margin and test what happens if milk, livestock prices or crop sales prices fall, costs rise, or interest rates move up by a couple of percentage points.

Young farmers can be tempted to assume that the new investment will “pay its own way” from day one.  In reality, most new investments need to be supported by proven capacity in the existing system for at least part of the repayment period – especially in the early years.

Sources of finance in the Irish marketplace

A young successor in Ireland today will typically bring together several sources of finance rather than relying on a single loan.

The main options are:

• Family capital and retained earnings

Family cash, sale of surplus assets, and reinvested farm profits are important parts of the finance mix.  For a young successor, a modest equity or own funding contribution – stock, cash or land – can both reduce borrowing and demonstrate commitment to a lender.

• Commercial bank finance

The pillar banks offer working capital facilities, farm development loans and longer‑term loans for land, buildings, machinery and stocking.  Within this, you can separate short‑term overdrafts and seasonal loans from term loans over 5–20 years, depending on the asset.

• SBCI‑backed schemes

Through the Strategic Banking Corporation of Ireland, schemes such as the Growth and Sustainability Loan Scheme provide longer term, lower‑rate loans via banks and some non‑bank on‑lenders, with EU‑backed guarantees.  These are particularly relevant for investment in climate and environmental measures or growth and resilience projects, although capacity at some banks is currently constrained.

• Capital grants

For qualifying young farmers, grant aid under schemes such as the TAMS Young Farmer Capital Investment Scheme can cover a significant share of eligible building and equipment costs, reducing the amount that needs to be borrowed.  In practice, a well‑timed grant application can make a marginal project viable.

• Credit unions and specialist lenders

Some credit unions offer unsecured and secured farm loans, sometimes over longer terms for land or buildings, and there are specialist agri finance providers active in the market.  These may suit particular situations where bank appetite or terms are limited.

A key point is that different sources suit different needs: short‑term working capital should rarely be funded with long‑term loans, and high‑cost short‑term debt is rarely appropriate for long‑life infrastructure. Matching the type of money to the job is a basic but often overlooked discipline.

In this recording, Teagasc’s Farm Management Specialist, Kevin Connolly and Donal Whelton, Head of Food, Fishing and Agriculture at AIB Bank, explore the key steps young farm successors should take before borrowing:

Matching loan to investment

As a rule of thumb, the life of the loan should broadly match the useful life of the asset.  Short‑term borrowing (up to a year) fits seasonal needs such as feed and working capital; intermediate terms (one to five years) can suit machinery or stock; long‑term loans (five to fifteen years or more) are more appropriate for land and substantial buildings.

Lengthening the loan term reduces the annual or monthly repayment and can ease early cash‑flow pressure, which is often attractive for young farmers taking on new debt.  However, it also increases the total interest paid over the life of the loan.  There is a balance to be struck between short‑term comfort and long‑term cost.

Where capital allowances are available on a building or piece of equipment, many advisors recommend aligning the loan term broadly with the period over which those allowances can be claimed, so that when allowances end and tax rises, the loan is largely repaid. That can smooth the overall cash‑flow pattern.

What lenders look for in a young successor

From a lender’s perspective, a strong proposal from a young successor has several common features.

First, a clear and realistic business plan, showing base‑year performance and five‑year projections for stock numbers, land base, output, costs, drawings, and debt servicing.  The plan does not need to be perfect, but it must hang together and be grounded in actual farm data.

Second, demonstrated management ability and discipline. Three years of accounts (where available), good record‑keeping, a clean credit history and sensible conduct on existing accounts all help.  For a young successor, completion of an agricultural qualification and participation in discussion groups or advisory programmes also show commitment.

Third, appropriate security and equity. Lenders will look at the quality and value of the security offered, the level of existing borrowings on the farm, and the amount of equity coming from the farmer. While security is important, modern credit decisions put at least as much weight on repayment capacity and management as on assets alone.

Finally, they will stress‑test the proposal – for example, by checking that the business can still meet repayments if interest rates rise by two percentage points or if farm income is lower than forecast.  Proposals that only work on very optimistic assumptions tend to come under pressure and trigger the risk alarm bells.

Managing risk and building headroom

Borrowing is one of the main financial risks a farmer takes on, alongside production, market and policy risks. For young successors, the key is not to avoid debt completely, but to take on debt in a way that is resilient.

There are a few practical risk‑management ideas:

• Build buffers – aim to keep some unused borrowing capacity (credit reserve) and some liquidity (cash or easily realisable assets) to deal with shocks rather than running right up to borrowing and repayment limits.
• Stress‑test plans – ask what happens if milk or beef prices are 5 cent per litre or 50–80 cent per kg lower than your base assumption, or if key input costs rise.
• Avoid stacking short‑term debt – overdrafts and merchant credit can quietly build up if drawings and repayments are too high; they need to be monitored and, if necessary, restructured.

The right level of debt depends on profitability, risk, repayment capacity and personal tolerance for risk. For some young farmers, modest borrowing carefully structured around a clear plan is the best way to get started; for others, the first priority may be to strengthen the existing business before taking on major new commitments.

Getting ready to meet a lender

By the time you sit down with a lender or financial advisor, most of the thinking should already be done. A practical checklist for a young successor would include:

• Recent farm accounts and management figures, plus clear physical information on land and stock
• A simple written business plan for the next five years (Teagasc “My Farm – My Plan” or similar), showing key investments and how they are expected to affect profit and cashflow.
• Details of existing loans and commitments, on‑ and off‑
• Evidence of grant applications or approvals, and of any relevant schemes you qualify for as a young farmer.
• A realistic figure for household drawings, including tax and pension commitments

Going to the bank with a half‑formed idea and no numbers tends to result in either a “no” or a structure that does not fully suit the farm.  Going in with a thought‑through plan, realistic assumptions and a willingness to discuss different options usually leads to a better outcome and a stronger relationship.

It is also worth “shopping around” within reason – different lenders and products can have quite different term, security and pricing structures – but always comparing like with like and looking beyond just the headline rate.

A final word for young successors

Taking over a farm and planning the first round of investments is a big step. It involves new responsibilities to family, to the land and to lenders.  It is easy either to rush into debt on the back of a strong year, or to freeze and delay necessary investments because of fear of borrowing.

Three principles can help keep you on track:

1. Let the farm plan drive the finance, not the other way round.
2. Know your repayment capacity and give yourself headroom.
3. Use the full suite of finance options – grants, schemes, family support and different finance sources – rather than assuming one loan must do everything.

With a clear plan, realistic numbers and good advice, finance can be a tool that supports generational renewal rather than a barrier to it.

The above first appeared in Securing the Future of Irish Farms: Approaches for Generation Renewal (PDF), produced as part of Teagasc Generational Renewal Week 2026.