Deciding whether to finance agricultural real estate or pay cash for farmland can be a difficult decision. While having cash on hand is always advantageous, financing may offer several benefits that cash cannot.
How Financing Farmland Can Mitigate Risk While Growing Business
One of the primary advantages of financing ag real estate is it allows farmers to conserve cash. While having cash reserves is important for unexpected expenses and emergencies, using all available cash to purchase farmland can leave producers vulnerable. Financing allows farmers and ranchers to keep their cash reserves intact, providing a safety net for future needs. Cash reserves can also be saved for unexpected and future real estate purchases where cash closings facilitate making a deal happen.
Financing also allows farmers to take advantage of lower interest rates. Interest rates fluctuate over time and impact the cost of borrowing. When interest rates are lower, farmers can take advantage of reduced borrowing costs and save money over the life of the loan. This can also help farmers expand their operations and purchase additional farmland or equipment.
Financing Farmland Can Help Manage Cash Flow and Reduce Financial Stress
In addition, financing allows farmers to leverage their available capital in the marketplace. When lenders are offering available credit, it can be peace of mind, especially if economic conditions cause credit availability to pull back down the road. By borrowing money, farmers can invest in their operations and increase their production capacity. This can lead to increased profits and growth opportunities. Financing also allows farmers to spread their payments over time, which can help manage cash flow and reduce financial stress.
Another advantage of financing farmland is it can provide tax benefits. Interest paid on farm real estate loans is generally tax-deductible, which can lower a farmer’s overall tax burden. This can provide significant savings over the life of the loan.
It’s Possible for Financing to Provide Several Advantages
“While having cash available for the next purchase is obviously a great position for anyone to be in, our seasoned staff of lenders will always ask the question: Does it make more sense to borrow and leverage available capital in the marketplace right now and save one’s cash for unpredictable times ahead?” comments Luke Schultz, Conterra’s regional relationship manager for the Great Plains. By leveraging available capital, farmers can improve their financial position and prepare for future uncertainties.
While paying cash for farm real estate may seem like the best option, it is possible for financing to provide several advantages. By conserving cash, taking advantage of interest rates, leveraging capital, and accessing tax benefits, farmers can improve their financial standing and position their operation for future growth. When considering a farmland purchase, it is important to weigh all options and consult with a trusted financial advisor.
Conterra Ag Capital is a private lender, focused exclusively on agriculture. Luke Schultz works directly with clients and lending partners throughout the Great Plains region. Conterra lending experts are located nationwide, providing flexible farm and ranch loans, crop operating loans, development and alternative lending to America’s farmers, ranchers and agribusiness.
Disclaimer: Please note that the information provided in this article is for educational and informational purposes only, and should not be construed as financial or investment advice. While we have made every effort to ensure the accuracy and reliability of the information presented, Conterra Ag Capital and its affiliates make no representation or warranty as to the completeness, correctness, timeliness, suitability, or validity of any information contained in this article. You should always consult a qualified financial advisor, tax professional, or other qualified professional for advice on your specific financial situation.