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South Central Iowa | Yeah, grain on hand would be current asset, very liquid and intended to be held under one year. Your working capital would not be considered tied up, it would just be the excess (hopefully) of that asset, like the grain on hand, against the liability that was levered to acquire it.
My LoC is based off of chattel (equipment and livestock) and emblements (the standing crop grown or to be grown), not off of some arbitrary number of dollars per acre. Those chattel items are an intermediate asset and thus not part of working capital. Working capital is irrelevant to a land owner with long-term liabilities because he sinks excess cash into early land payments. I can do an equity loan off of those long-term assets, which have an improved ratio from early payments, and return the cash upfront without upfront liabilities, but my long-term ratios would worsen. That wouldn't make sense, but that would be the equivalent of wanting a landowner to not make early or excess payments on term liabilities so that he has some target number in working capital. Debt coverage ratio or capital debt repayment capacity from the operating statement and cash flow are ratios that really matter to a banker worth his salt. | |
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How much working capital per acre does your lender want?
