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Secured Borrowing – important update for farmers and rural businesses

Published: 14 September 2023
Time to read: 2 mins

Sometimes the law sounds pretty dry, [and sometimes it is!]. However, a recent, dry-sounding change to the law may alter the way farm tenants and other small businesses borrow money from the Bank, (or anyone else).

The new system being introduced by the Moveable Transactions (Scotland) Act 2023 is the ‘Statutory Pledge’ which should allow tenant farmers to offer security to the Bank in ways in which they cannot do at present. This may provide for new opportunities for borrowing or allow them to borrow at a better rate.

What is a ‘Statutory Pledge” then?

This is for businesses only. The idea is where an individual farmer or a partnership [not a company] grants a fixed security to a lender over moveable property – things you can move such as tractors and machinery, and, it appears, herds and flocks and other similar substantial assets (worth over £3,000) used in a business. This means that, if the borrower defaults, the creditor can take and sell those assets, usually with a court order, and can use the proceeds to pay off their loan.  This will not apply to e.g. household goods.  If the pledged assets are sold and the purchaser is in good faith, then their title will be good, but the possibility that some items are affected by a statutory pledge will need to be borne in mind. Otherwise, the creditor can come after the money.

When does this come in? 

Not yet. There is going to be a public Register of Statutory Pledges which anyone can look up, but the detailed regulations to establish it have not yet been passed. It is expected that the system will “go live” next year.

Will it make a difference?

The answer is probably a ‘maybe’ in the farming world. The Banks have apparently not yet given much thought to this as a possibility, as it’s not yet fully in force, but a business that doesn’t own its land or buildings may well be able to use this system in coming years. It may well provide new opportunities for financing vehicles, plant and machinery or raising cash against livestock “


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