3 Steps to Rising Above Farm Financial Strain


Three-step process helps ensure long-term financial viability for farms and ranches.

Not all alternative ag lenders are created equal. Alternative lending is something of a catch-all for institutions that use non-traditional strategies and mechanisms to help farmers and ranchers cover their financial obligations to sustain their operations. Some of those strategies can actually cause more strain in the long term while others are more geared toward continued financial viability well into the future.

Ensuring the latter is a high priority for Conterra Ag Capital, and we take a three-step approach in ensuring our client facing dire financial straits emerge in a stronger position. It’s typically a 1- to 3-year process from which a borrower can emerge with the necessary liquidity to sustain his or her operation over the long term.

Every farmer or rancher experiences financial stress throughout his or her career. It can be caused by the risks inherent to agriculture, like a crop loss, or external factors that cause an unexpected rise in expense, like death or divorce. Regardless of the source, the right financial management strategy can help ease that stress when it develops.

Step 1: Find out where you stand.

The process starts by creating a partnership with a lender, like Conterra Ag, that can identify specific ways to restore financial balance and liquidity through prudent asset and equity management. One way to do that is to conduct an audit of existing assets. Such an assessment can help the borrower determine if assets, like machinery and land, are performing in a way that contributes to the operation’s overall output. Some farm machinery may not be used frequently enough to justify its ownership costs, just like some grazing land may not support the livestock necessary to continue footing the bill for it. Liquidating assets like these in small increments can help borrowers lower their debt-to-asset ratios and gradually build liquidity at a time when it’s badly needed.

Step 2: Restructure financing.

Once performing assets are streamlined and their costs are more easily reconciled with operational revenue, the right refinancing strategy can help lower expenses and free up cash, contributing to a much-improved overall balance sheet. Though it often comes at higher interest rates (7% versus 3%, for example), restructuring financing terms can help strengthen working capital, ultimately providing the financial rehabilitation necessary to sustain an operation in the long term. This is a temporary move aimed at providing necessary capital, which is sometimes difficult for conventional ag lenders, especially at a time of general financial malaise in the ag sector, like today.

Step 3: Return to an “at-market” rate.

After anywhere between one and three years of following this kind of restructuring plan, along with the right financial management and marketing strategies, the producer should be in a much better place as it relates to overall debt load. At that point, that operational debt can be refinanced more “at-market,” enabling the farmer or rancher to better take advantage of current low interest rates. Completion of this process is not a guarantee that success will follow; it will, however, put the producer in a much stronger position from the standpoint of debt-to-asset ratio.

Start with the right tools.

You can’t know where you need to go unless you know where you are today. That’s why it’s important to have a balance sheet and income statement — the financial reporting that will enable both you and the lender to get a strong feel for the most practical and effective refinancing strategy.

At Conterra Ag, we offer alternative ag lending. But what distinguishes us from others is our commitment to working with farmers and ranchers to create long-term solutions to ensure they meet their long-term goals. If you’re interested in learning how we can accomplish this outcome for your operation, contact us to start the process today.

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