September 29, 2020

Restructuring and Refinancing Farm Debt: Know Your Options and Best Routes to Relief

Farming is a volatile business, relying on many uncontrollable elements like nature to create profits and other rewards for those who choose it as a lifestyle and a career. In uncertain economic times, it can become even more of a juggling act if you’re not playing offense and being proactive about your finances in the first place.

As it always has been, those who want to be able to weather any storm that comes their way, whether literal or metaphorical, will need to take the time and effort to familiarize themselves with their operational cash flow. This includes understanding how it works and analyzing it to ensure that it’s being properly handled for the best chances of surviving any instability that may arise.

Keep reading to learn more about how to handle finding and maintaining liquidity, even during the toughest times. This is a difficult situation to be in, but it’s not an impossible one. Before you ask for help, you need to first identify the causes of the financial stress and come up with an effective action plan that will alleviate the burdens. This will help you better understand your situation and your options, and it will show lenders that you are serious about taking control of your finances and getting your debt under control.

Tips and Tactics for Restructuring Farm Debt

There is no single solution for approaching farm debt because every situation is different. Therefore, the first item on your list will be to ensure that you are in contact with an agricultural lender that understands the industry and how they need to evaluate your specific situation. This will ensure that you are presented with the best options. Here are some other things to keep in mind.

Payment Adjustments

Consolidating your debts or otherwise making adjustments on all of the loans and bills that you have to pay can make a significant impact on your financial situation. Although total debt consolidation is probably one of the more major efforts, it produces great results because it allows lenders to adjust payments based on the needs of your specific operation, including variable payment terms and other details.

Cutting Expenses

It’s not anyone’s favorite topic, but often, some pretty significant expenses can be cut, both from the farm budget and from the family living budget. You don’t have to stop spending completely, but you should take a good hard look at the finances and see if any unnecessary expenses can go. Often, you’ll find more than you think.

Extending Loans

Also known as stretching the amortization, you can often extend the terms of your loans to get payments lower. This will mean you won’t pay them off as quickly, but when you’re in a financial pinch, having access to liquid funds is much more important. This may also make it easier to get financing or expand in the future. Ag Lending Group offers true long term farm mortgage solutions that can be fixed or amortized over 30 years.

We can't express our appreciation enough for Richard and Madison at Ag Lending Group. 2019 was our family's ranch 100th year anniversary. We are not new to this industry. We had to make some tough changes in 2019 to our operation. As all of us do involved in agriculture. It was a BIG surprise to us how fast our long time Ag lender drop us when we needed them most. We were not in bad shape, just had to make some changes. No help from one of the nations leading Ag lenders. Even though their advertising states that "they are the ones to choose if you want the backing of a partner in agriculture". I beg to differ. That brought us to Richard and Madison. They where positive, honest, helpful, understanding, hard working and real. They believed in us, work hard for us and helped us through our challenge. This ranch matters to us, and it is a nice feeling, that now, it also matters to our Ag lender. They are appreciated on our soon to be 101 year old family ranch. Thank You Ag Lending Group, your welcome here anytime. All our best.

- Newkirk Ranch

Interest Rate or Term Adjustments

Most lenders are apprehensive about the volatile nature of agriculture, but specific ag lenders know that it’s all a balance of ebb and flow that eventually works itself out when handled correctly. Many farmers will choose to work with these lenders to adjust their interest rates to secure a lower fixed rate while they’re more readily available in the current economic climate. You can also consider getting an interest-only loan or line of credit where you’ll only pay interest for certain periods so that you can use that extra cash to help where It's needed. Ag Lending Group is able to do this for their clients through their real estate backed line of credit.

Other Things You Can Do to Help Your Farm Finances

In addition to the big changes listed above, there are also some everyday things that you can do to put yourself in a better position financially. Plus, they will also put you in a more educated position regarding your farm’s finances, which will be invaluable in the future. If you want to maximize your financial management, here are some tips:

·   Keep thorough records and accounting statements for every aspect of your farming or ranching operation.

·   Understand your current working capital needs and what you seek in the process of restructuring. “More money” is not a good enough answer.

·   Make sure that you understand and keep in mind the balance of assets and liabilities that is required to help build liquidity while still maintaining cash flow.

·   Find and keep a trusted agricultural lender that will be there to help you through any financial struggles, big and small.

·   Monitor and assess your ROI to make sure your expense ratios are as low as possible. This is the ongoing effort that will take place after you do the major expense cutting discussed above.

Always Read the Fine Print

Too often, desperate times cause people to overlook details. Whether deliberate or accidental, it can be dangerous to the future of your farming operation. If you have a trusted lender on your side, this shouldn’t be much of an issue, but you still need to know every detail before you sign any new loan agreements or loan modification documents. The right lender will make sure that you do.

It’s hard to face the reality of the situation when you’re struggling with your farm debt. However, it’s even harder to attempt to keep going on without interruption and pretend like nothing is wrong. The longer you let it go, the worse it is going to get. Don’t let yourself become another statistic of good farming that’s lost to the system. Get on top of your finances now and figure out which route to relief is best for your needs.

Always be upfront with your lender when addressing your financial difficulties. That way, you’ll be presented with the best possible options and no solution will go overlooked. It’s a process, but it’s one that you no longer have to fear because you know what to do. Next time there’s a financial situation that is out of your control, you’ll be ready to get right on finding the best answer if you keep these things in mind and keep a trusted alternative or farm lender on your side.