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Setting up Young Farmers - Interest Rate Relief

Option closed to new applications

Introduction

This Option is aimed at helping young farmers/crofters who are starting a farming business for the first time to develop the business in the critical early stages. It provides interest rate relief on a commercial business development loan and an establishment grant.

What will this achieve?

Young new entrants to farming often find it difficult to raise the capital needed to acquire and develop their new business. Providing support for business development in the critical early stages will make it easier for new entrants to access business development capital. It will also provide encouragement for them to enter the industry in the first place.

The measure will therefore contribute towards an increase in the number of young entrepreneurs entering farming and building profitable, innovative businesses which respond to the industry's changing economic environment.

What can you do?

This support will help you to access a commercial loan to develop your business, for example:

  • towards the purchase of equipment or machinery or livestock;
  • towards the construction or development of buildings and infrastructure; or
  • towards the provision of working capital.

This can be for the core agricultural business or for a diversification opportunity. This support cannot be used in relation to a loan for the purchase of land.

Who is eligible to apply?

Young farmers or crofters who, at the time of committing a proposal:

  • are over 16 years but under 40 years of age;
  • have for the first time set up as the head of an agricultural business (either as sole proprietor; or as the majority partner; or as the equal partner with another farmer or farmers under 40 years of age) registered on the Scottish Government's Integrated Administrative Control System (IACS); and
  • have been head of that business for not more than 12 months.

NB Companies are ineligible for this option.

Other eligibility criteria

  • The agricultural business must have an agricultural Standard Labour Requirement (SLR) size of 0·25 Full-Time Equivalents (FTE) or greater. One FTE consists of 1,900 SLRs (see Annex below for information on how to calculate the SLR for your holding).
  • The business must be viable, taking account of all income streams.
  • The business development plan, including financial estimates, must show that the business will become viable within 5 years after the approval date.
  • The business must set up a separate account in a lending institution held solely to service the project for which the grant has been approved.
  • The business must undertake to comply with animal health and welfare legislation and with cross compliance requirements (Statutory Management Requirements and Good Agricultural and Environmental Conditions).

The Young Farmer/Crofter must either:

  • have a suitable agricultural qualification (at least to National Vocational Qualification Level 2); or
  • be able to demonstrate 5 years practical agricultural experience and include with the business plan a personal development plan with an objective to achieve an appropriate qualification within 3 years after the approval date for grant.

The submitted proposal must include:

  • a copy of the business plan agreed and endorsed by the lending institution (see below for information required in the business plan);
  • a letter of approval from the lending institution;
  • details of the separate bank account set up for the project;
  • proof of suitable agricultural qualification or a personal development plan;
  • a copy of your birth certificate or other proof of age;
  • proof of who the main partner is (partnership agreement or accountants letter); and
  • evidence that the business has an agricultural Standard Labour Requirement of at least 0·25 Full Time Equivalent.

A business plan must include:

  • details of the initial state of the business;
  • the scope and aims of the business development project, with milestones for development;
  • the investments involved;
  • any training, advice or other action required;
  • if not already achieved, you must have as an objective to achieve membership of an appropriate Quality Assurance Scheme within 3 years after the approval date for grant.

Rate of support

The grant will support the cost of the interest payable on a commercial business development loan from an authorised deposit taker (for example, a high street bank or building society). There is also an up front establishment grant equivalent to 75% of the interest rate relief.

There are different levels of support depending on the size of the business.

For businesses with 0.5 FTE or greater we will pay interest rate relief up to a maximum of £27,397 over 5 years and up to a maximum interest rate of 3·5% above the Bank of England base rate at the time of application. We will also pay a maximum establishment grant of £20,548.

For example, £50,000 borrowed over five years. Total interest paid is £5,152.60 = 5 x £1,030.52 annual claims plus an establishment grant of £3,864.45 (75% of £5,152.60).

For businesses with greater than 0.25 and less than 0.5 FTE we will pay interest rate relief up to a maximum of £16,438 over 5 years and up to a maximum interest rate of 3·5% above the Bank of England base rate at the time of application. We will also pay a maximum establishment grant of £12,329.

For example, £15,000 borrowed over five years. Total interest paid is £1,545.60 = 5 x £309.12 annual claims plus an Establishment grant of £1,159.20 (75% of £1,545.60).

Note that where the amount of interest payable exceeds £27,397 or £16,438 or the interest rate is higher than 3·5% above the Bank of England base rate, you will be responsible for paying the extra costs. Grant on interest rate relief will be paid annually in arrears.

The establishment grant will be payable in one instalment. A capital claim form will need to be completed to enable this payment to be made.

Additional Support

The business may be able to access other measures through Rural Development Contracts. The business plan will help provide a basis for access to these other measures, although additional information may be required and the proposal will be considered competitively with other applications. Where appropriate, the beneficiary will also be able to benefit from the higher grant rates allowed to young farmers under measure 121 (Modernisation of Agricultural Holdings).

Inspections/verification

To verify the information submitted, the Scottish Government may carry out checks, including a separate business test or seek clarification or further evidence relating to any aspect of the application and supporting information.

Claims for grant have to be supported by a statement from the lending institution setting out the capital and interest payments made over the year to which the claim relates. Where payments have not been made in line with the agreed schedule, the Scottish Government will not pay towards any additional interest that has accrued and this may result in aid being withheld or withdrawn.

The business plan will be reviewed by the Scottish Executive within 5 years, before the final payment of interest rate relief grant (where the business plan includes an objective to obtain a suitable qualification or membership of a Quality Assurance Scheme, evidence of this will have to be provided before the third payment of this grant is made). The review(s) will compare progress against the business plan and consider any discrepancy. Where the business plan has not been followed or progress is not satisfactory, the Scottish Executive may withhold part or all of the remaining payments and require repayment of part or all of the monies already paid either as interest rate relief or an establishment grant.

Annex

STANDARD LABOUR REQUIREMENT FOR FARM ENTERPRISES

To calculate your farm business's SLR:

  • select the appropriate type(s) of crop or livestock and
  • multiply the number of "units" in your business by the number of SLRs per unit
  • add the total together to arrive at a total SLR.

To be eligible for this Option, your total SLR must be at least 425.

Enterprise

Unit

SLR per unit

Units per 1 FTE

Wheat

Ha

20

95

Barley

Ha

20

95

Oats

Ha

20

95

Peas, beans and lupins

Ha

10

190

Potatoes

Ha

105

18

Oilseed Rape

Ha

15

127

Linseed and flax

Ha

15

127

Field scale vegetables inc. strawberries

Ha

100

19

Market garden scale vegetables inc. strawberries

Ha

100

19

Vegetables under glass inc. strawberries

Ha

5,000

0.38

Outdoor flowers

Ha

1,500

1

Flowers and pot plants under glass

Ha

25,000

0.08

Temporary grass

Ha

4

475

Other forage crops

Ha

6

317

Grass and clover seed

Ha

20

95

Other arable crops

Ha

20

95

Fallow

Ha

4

475

Set-aside

Ha

1

1,900

Permanent grass

Ha

4

475

Rough grazing

Ha

1.5

1,267

Top and soft fruit excluding strawberries

Ha

450

4

Horses and ponies

 

150

13

Cattle <1

 

9

211

Male cattle 1<2 years

 

9

211

Female cattle 1<2 years

 

9

211

Male cattle 2 years and over

 

9

211

Heifers 2 years and over, not yet calved

 

9

211

Dairy cows

 

39

49

Beef cows

 

12

158

Beef cows in LFA

 

12

158

Ewes and rams

 

5.2

365

Ewes and rams in LFA

 

4.2

452

Other sheep

 

3.3

576

Other sheep in LFA

 

2.6

731

Goats

 

20

95

Piglets

 

0.2

9,500

Breeding sows

 

14

136

Other pigs

 

1.9

1,000

Broilers 1.35

 

0.04

47,500

Laying hens

 

0.17

11,176

Ducks, turkeys, geese and guinea fowl

 

0.045

42,222

Deer

 

15

127

 

 

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