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Registered: ‎07-04-2013
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Re: Debt free farming operations

Farming is primarily weather dependent in most places. I am from Australia and run cattle. I am also a CPA. Debt continues to accumulated interest on interest in bad times when loan repayments cannot be met. The bank may allow an extension of time to pay, but that only lets the debt grow bigger. Bad times come with bad weather or bad prices. The trap in farming is if income is received pretty much only once a year. Farmers often borrow all the money to run the farm for a year until the check for sale of cattle or grain or whatever comes in. Then when it comes in they repay the bank, haviing lost much of the gross income by way of bank interest and charges. If weather or prices cause the amount received to be less that what is needed to repay the loan, then the farmer is stuck in the debt trap, as money then has to be borrowed to run for the next year on top of what could not be repaid last year. Once the moneylenders have you caught in that debt trap they can raise  the interest rates and charges at will and from then on have a virtual licence to transfer your earnings and assets to themselves. If that takes a decade or so while you work hard and wonder why you are not getting ahead, it does not worry them because they will be getting something along the way and most of the rest when they sell you up.

 

Debt is okay if strictly managed so that you do not default ever. That means low debt to asset and income ratios, good budgets and financial statements and very moderate spending to ensure that money received exceeds money spent. I work on the principle that once money is borrowed it shoujld be your major concern until it is repaid. Do that and pay it back eaerly rather than late and farmers will mostly go okay.

 

If you are going to borrow, get ongoing advice from a CPA or experienced farm financial adviser who undedrstands the way banks work, from before you borrow until after the debt is cleared and the mortgage discharged.