Farming Working Capital Loans

As a farmer, perhaps you may need additional capital to buy, construct, or remodel facilities so you can expand your business. You may also be contemplating the purchase of new farming equipment to boost the efficiency of your operations. These are all great, and they indicate that your farming business is thriving.

On the other hand, it may be difficult to do all these if you lack the working capital you need to run your farm smoothly. It’s not always easy to compute the amount of working capital you need. If you don’t have enough, you may need a working capital loan to support your farm, and that’s not always easy to get.

What is Working Capital?

Technically speaking, working capital is what you have once you compute your current assets (the cash you have, the value of your crops and livestock, and your accounts receivable) and then deduct from it your current liabilities (accounts payable, along with any debts and interest you need to pay for the next 12 months).

A good amount of working capital to have available is about 15% of your farm’s gross revenue, although it may be more comfortable to get this to up to 25%. So if your farm generates $300,000 a year in gross revenue, then your working capital on hand should be at least $45,000 (the bigger it is, the better).

It’s crucial that you have enough working capital on hand if you want your farming operations to run smoothly. Your working capital gives some measure of protection should something go wrong.

For example, disease may spread through your livestock, or perhaps climate change is adversely affecting the volume of your crops. Having enough working capital also means you don’t have to take a loan for which you will have to pay interest.

Protecting Your Working Capital

One way to preserve your working capital is to be extra conscientious whenever you’re making a serious purchase with your money. Major expenses affect your working capital, so you need to consider each purchase carefully.

For example, you should think carefully if a purchase is necessary at this time or if it can be delayed. If you’re buying new farming equipment, you may want to see if a used equipment can be just as good so you can save money. You may also want to have a major purchase financed so you preserve the cash you have ready for contingencies.

But some farmers may have problems maintaining some semblance of working capital throughout the year, especially when the farm only gets two or so huge paydays per year.

Obtaining Farming Working Capital Loans

Not all banks are enthusiastic about lending money to farmers, especially when the farm is small. But some lenders do focus on this industry.

Different lenders will have different conditions regarding the loans. Often you will need to secure the loan by offering real estate and farming equipment as collateral. Repayment conditions may also vary with some asking for regular payments while others may want to get half of all revenues as they come in.

These loans can be used for a wide variety of purposes. If you need working capital for your farm, you may want to get a loan as quickly as possible.

 

Published by

Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com

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