Raising cash from your farm’s equity
It’s a call no Canadian farmer wants to make: contacting a lender to discuss options to cover an unforeseen short-term cash flow crunch.
It could be the result of disappointing production, expenses markedly higher than budget, an event like COVID-19 or unexpected loss of market access. Whatever the cause, you need to get some cash flow flowing and sooner rather than later. It happens.
For many farmers, there’s a stigma attached to taking a step back in paying down debt, but it shouldn’t be viewed as a fail. No one wants to have to take out a new loan on an asset that they’ve worked hard to pay off, but that equity is a resource that can be used to access emergency capital. Pride shouldn’t stand in the way of doing the right thing to keep the business running optimally.
“Agriculture faces a lot of risk – much of which is outside the producer’s control,” explains Michelle Sandercock, credit learning specialist with FCC. “Unforeseen things can occur that you sometimes can’t avoid. If this happens, I would argue it’s good business practice to head it off before it becomes a bigger issue.”
The best solution will solve today’s cash flow question, yes, but also build in some flexibility for tomorrow.
If a producer in a healthy equity position needs to raise short-term cash to ride out a storm, that can be arranged. It might be better, however, to discuss with your lender not just the immediate situation but your longer-term vision. The right loan could help today and tomorrow.
“We’d want to have a solution set up and in place for the long term,” Sandercock says. “We would also want to present a solution that would minimize cost to the producer. If the customer is paying administration fees on several loans, it might save money to have just one. Within that, you could look at different ways to manage interest rate risk.”
Take the long view
If cash flow lending is looked at too narrowly and too short-term, it could come with an opportunity cost. If the farm’s current needs and future goals are both considered, the producer might get to their ultimate destination quicker.
“Land is sold all year round now and you might need to get going on a purchase while you’re in the tractor,” Sandercock says. “If something comes up and they want to act quickly, they can do that. We want to set the producer up for success.”
She invites producers who need or want to boost their cash flow to open a discussion with their lender. The best solution will solve today’s cash flow question, yes, but also build in some flexibility for tomorrow.
“Take the time to think about where you want to take your business and set it up properly to support that goal.”
From an AgriSuccess article by Kieran Brett.