| Agr723 - 1/17/2019 06:35
The return to working capital is the ability to take advantage of deals where decisions and payment needs to be done immediately. Having to talk with a lender to set up a note doesn’t take long, but even that day or two can cause a missed opportunity sometimes.
Working capital is the difference between asking your lender if you can do something and telling your lender you are going to do something.
That’s what I’ve been thinking but didn’t know how to say it. Until I get to the point that my LOC is near zero, I don’t see the benefit of increasing that balance to pay forward a loan at significantly lower interest rate. I easily could have done that two years ago when I had plenty of working capital. After hogs getting crappy and getting prrs in our sow herd, I haven’t hardly sold a pig for a profit since summer 2017. So now my working capital isn’t so hot, and I wouldn’t blame a banker for being hesitant to borrow money back out of my land equity that I’ve built up to fund a hog operation that still isn’t profitable. I know I’m not very smart but lowering working capital to pay down a lower interest term loan, and then needing to borrow back on the long term asset when opportunity knocks, just seems like a lot of horsing around and setting yourself up for the situation where the bank doesn’t play along when you need it most. Whereas if I just keep my working capital high and only making the minimum payments on the term loan, I don’t have to get someone else’s blessing to do what needs to be done, I can just do it. I don’t know, that’s just what I think, even though I’m probably not right. |
How much working capital per acre does your lender want?
