How to Fund a Farm Shed Without Straining Cashflow

Cash, loan or grant? What is the best way to finance a new farm shed?

Deciding to build a new farm shed is often driven by the requirement for more space and storage, only later does affordability enter the equation. In this article, first published in the Farming Independent, our Cavan Partner, Sean McGovern explains why it's important to assess not only why you need the shed, but also how you'll finance the investment. At €100,000 to €120,000, a new farm building is a is a serious drain on the cashflow of any farm especially when in the current market, input and output prices are unstable. Deciding to build a shed and how you pay for it deserves as much thought as the build itself.

There is no single ‘correct’ way to fund a shed. It comes down to striking the right balance between cashflow, cost and flexibility for your farm. The following is a guide to the main things worth weighing up before you commit.

Farming Independent article

Key takeaways

Don't tie up all your cash reserves

Match your loan term to the life of the shed

Compare the total borrowing cost, not just the interest rate

Check your eligibility for TAMS grants

Understand the available tax relief

Stress test your repayments before committing

"The right funding mix is rarely all savings or all borrowing. For most farms, it's about protecting cashflow while investing for the future."

Sitting on cash isn’t free

Average inflation in Ireland has run at 3.65% over the past five years, well above what most deposit accounts pay in interest. If you have reserves built up, it’s worth asking whether that money would work harder elsewhere, or whether some of it is best used to part-fund the shed.

However, even where the cash is sitting in a bank account, spending it in one go isn’t necessarily the smart move. You need to look ahead to what else that money might be needed for, such as working capital, a tax bill after a strong year for farm profits, or a deposit on land if the opportunity arises. For many farms, the answer is a blend of savings and borrowing rather than an all-or-nothing approach.

Match the loan term to the asset

A shed is a long-term asset so the finance behind it should be too. As a general rule, we advise that the term of the loan term should match the years over which the building will generate benefit. Usually, the maximum loan term for a shed is 15 years. Bank loans tend to be the more common route for farm buildings, and we would encourage taking a longer-term loan when suitable as they offer longer terms and greater flexibility, including the option to repay early.

Look beyond the headline interest rate

The interest rate alone doesn’t tell you the true cost of borrowing. Repayment frequency and loan term matter too, along with any arrangement fees, security charges or potential legal costs (if security required). The difference can be sizeable. Borrowing €100,000 over seven years at 6.5% costs €23,356 in interest with monthly repayments but €28,151 with annual repayments - a gap of nearly €4,800. That’s because the loan balance reduces less often when repayments are annual rather than monthly.

Spreading the cost makes cashflow sense

Borrowing rather than paying upfront generally suits farm cashflow better, since it spreads the cost of the build across the loan term instead of taking the hit in a single year. This matters even more given how tax relief on the shed works.

Farm buildings qualify for capital allowances at 15% a year for six years and 10% in year seven, so a €100,000 investment generates €15,000 of allowances annually for years one to six, and €10,000 in year seven*. There’s no tax relief on the capital element of loan repayments but interest is relievable each year. Paying upfront from reserves brings no additional tax advantage.

Stress test repayment capacity

Before settling on a repayment level, analyse your farm profit over the last three to four years, then deduct existing loan repayments, living expenses, tax, and any other planned capital spend. What’s left is your capacity for a new loan.

For example, average profit of €80,000, existing repayments of €15,000, and drawings (including tax and pension) of €45,000 leaves roughly €20,000 to service new borrowing. Your bank will run its own numbers using accounts and tax assessments from your accountant, using a 3 year average, but it’s worth knowing where you stand before you apply.

You should also factor in a buffer, so that poor weather or depressed output prices don’t leave you exposed. Also consider what cash reserve you want left after the shed is paid for. A six-month buffer or €500 per cow by year end, for unexpected costs is a sensible target to work towards.

Fixed or variable?

If there’s a chance you will be a position to make extra loan repayments in a strong year, the type of interest rate matters. Variable-rate loans generally allow early repayment without penalty, but the rate can move with the benchmark rate. After drawdown, fixed-rate loans hold steady for the term and usually come with a penalty for early repayment.

Don’t overlook the grants

You should always investigate if TAMS is available as with ranking process, along with your circumstances can dictate approval. If you qualify, grant support can ease the cashflow burden for a farm shed investment. The TAMS scheme offers 40% on eligible shed costs up to €90,000, rising to 60% for Young Trained Farmers or Women in Farming, with a separate €90,000 band for nutrient storage where a slatted tank is involved.

Registered Farm Partnerships can access a higher threshold of €160,000, provided the second partner is a Young Trained Farmer or has farmed for at least two years. Most banks offer bridging finance to cover the gap until the grant is disbursed. And if you’re a Flat Rate Farmer not registered for VAT, don’t forget to reclaim the VAT on the build through the VAT58 scheme.

You should always discuss if a grant is a good fit for you with your Agri Advisor.

The right fit depends on your figures

Financing a farm shed is rarely a one-size-fits-all decision, and for most farms the right answer is a mix of borrowing and savings rather than one or the other. Look back at your profitability and reserves, look forward at what else the farm will need to fund, and let those numbers guide the split.

Every farm’s figures are different, so it’s worth talking it through with your accountant or advisor before you commit, to make sure the financing structure fits your business as well as the shed does.

Talk to Sean McGovern

Partner049 4331277 cavan@ifac.ie Linkedin