South Central Iowa | carlsoncl - 1/16/2019 22:29
I farm, feed cattle and make land payments.....I never have 5 dollars of cash in my wallet.......It's all working for me. (AKA, Working capital.)
This is me as well, I farm, which is why I said owner-operator. But working capital is current assets minus current liabilities. It pretends our intermediate assets like cattle and machinery are not valuable; that improving loan to value ratios against chattel and land are less important than having a lot more than $5 of cash in your wallet.
When you, I, or other land owners/buyers make excess money, we either pay extra on the land, buy more land in cash, or make some sort of improvement to the land like terracing, tile, fencing, etc. So we either decrease liability against the asset, increase the quantity of assets neutral to liability, or improve the asset and its value relative to before, all respectively. To a bank that wants an arbitrary amount of dollars sitting up front, somehow those things are bad. That's why I say they are not a lender you want.
What we value, you, I, and land owners, is earned capital or equity. Our net worth grows even though we might not have much cash left over. It can feel tight at times, like when the crop or price is poor, but capital accumulation very rewarding in the long-term and, in time, becomes more and more noticeable, especially with early payments and periodic restructuring to lower annual servicing.
Edited by Conan the Farmer 1/16/2019 22:55
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How much working capital per acre does your lender want?
