Agriculture - Government-backed loans: research

Introduction

Challenges with access to finance (the ability to borrow money) are widely recognised as a barrier to young and new entrant farmers and crofters entering the agricultural sector in Scotland and across Europe, as discussed by the European Council of Young Farmers (CEJA)^[1]. The agricultural sector in Scotland needs to attract young farmers and crofters^[2] due to ageing farmer demographics. In Scotland, 66% of working occupiers are aged 55 and over, with only 16% aged 44 and under in 2025, according to Scottish Government figures^[3]. Similarly, European Union (EU) statistics show that approximately 58% of farm managers were aged 55 and over and approximately 12% under the age of 40 in 2020^[4], although rates for age groups vary across EU countries.

There is a desire to attract new entrants to agriculture as research has shown they bring new ideas, networks and valuable experience from outside farming (Stark et al ,2025)^[5]. Research on Scottish new entrants and successors has revealed that they are more likely to plan increases in capital investment, diversification, invest in new technologies and generate renewable energy, as well as intensify production compared to established farmers (Hopkins et al, 2020)^[6].

Obstacles for these young and new entrant farmers and crofters include access to land and finance^[7]. Access to land has become more competitive, as the price of agricultural land continues to rise^[8], the number of tenancies is reducing, and there is increasing demand from multiple sectors (forestry, natural capital etc.) and purposes (housing etc.). To address this, the Scottish Government have supported initiatives including the Scottish Land Matching Service ^[9], Starter Farm Pilot scheme^[10] and the Crofting Agricultural Grant Scheme (CAGS). Through CAGS, crofters can apply for grant aid of up to £25,000 in any two-year period for capital investment or apply as a group of crofters.^[11] Crofters under the age of 41 are eligible for higher rates of grant aid^[12]. A Scottish Government commissioned independent evaluation of the Scottish Rural Development Programme 2014-2020 Capital Grant Schemes, found that a quarter of CAGS applications approved were made by young crofters from 2019 onwards^[13].

The Young Farmers Start-up Grant Scheme (with a budget of £10.8m/€13.0m and awarding grants of up to €70,000) and New Entrants Start-up Grant Scheme (with a budget of £0.8m/ €0.9m and awarding grants of up to €15,000) were also introduced under the Scottish Rural Development Programme 2014-2020, delivering 205 and 49 grants respectively. These schemes were described as very popular and over-subscribed in a 2022 Scottish Government evaluation^[14]. However, the evaluation also noted that the 254 farmers supported across both the Young Farmers Start-up Grant Scheme and the New Entrants Start-up Grant Scheme equated to less than 1% of agricultural holdings and farm businesses in Scotland and structural challenges around land availability and profitability meant that the grants had a limited impact on generational renewal in Scottish agriculture.

Whilst the Scottish Government has provided grant funding to young/new entrant farmers and crofters to date, they have not been involved in providing loans, unlike other countries in the EU, which have provided government-backed loans with support from the European Investment Bank (EIB), offering long-term loans and preferential interest rates. In 2023; the National Farmers Union Scotland (NFUS) presented a proposal to the Scottish Government, calling for government-backed loans for new/young entrant farmers. A government-backed loan scheme would also contribute (indirectly) towards the 2025-2026 Programme for Government (PfG) Commitment: ‘Creating more opportunities for new entrants to farming on public land – including considering the use of land acquisition to deliver tenancy opportunities and prioritising capital support for new entrants and the next generation of farmers through the Future Farming Investment Scheme’^[15].

Government-backed loan schemes act as an effective support mechanism for young and new entrant farmers and crofters to access finance because they reduce the risk for lenders, when these farmers lack security. Under a government-backed loan scheme, borrowers remain liable for repayment of 100% of the loan to the lender. However, there is a government guarantee in place meaning that if a borrower defaults, a proportion of the lender’s loss is guaranteed by the government, which reduces risk exposure for the lender.^[16]

To date, there has been no formalised exploration of the types of government-backed loans that other countries offer to new/young entrants. This short exploratory report aims to provide insights into government-backed loan programmes in other countries and provide some insights from key stakeholders about the need and potential challenges to set up new agricultural finance products. The report also suggests future steps to explore Scottish government-backed loans further.