Tough times call for tough decisions, especially when it comes to debt. In tough and trying times such as these you may find yourself making decisions you made have not made under other circumstances. You may decide to cut some corners you may not have even thought about in the past or restructure debt in a way that would have made you cringe in prior years. It takes time to think through these type decisions, and I am sure part of the decision making process involved thinking through how this will effect your goals for the future.
The concern I hear the most is concerning debt restructures and the re-extending of amortizations. Don’t just let the bank figure it out for you! Sit down with them and understand what options are and are not available to you and why. You need to know if you are getting yourself into more trouble. There may be a way to make it work, but if it doesn’t work out this crop year you may find yourself in an even bigger mess to get out of.
Understand your equity position! If you were to get out now what would you be left with? I’m not saying you should necessarily consider getting out, but this is a scenario you need to run. Where would you be if you got out? Do you have enough equity in your assets that you could sell one asset and be able to payoff another? Or, would you have to sell it all and keep what is left? If you eat up some equity this year by using your assets to collateralize a shortage loan where will you be next year?
An option maybe given to you to re-extend the amortization on a loan, or to have the number of years on a loan be longer than they typically would be by adding real estate as collateral. This maybe done in order to get you a more affordable payment, which is what you are probably look for with these low prices. Just remember that only helps you with the debt service (ability to repay) it does not help the balance sheet one bit, if anything it beats it up a bit. By taking a longer amortization you are paying back less in principal each year, and this delays the accumulation of equity on the balance sheet. This is a short term fix to make through these times. If your long term goal is to pay off your farm in X number of years, then as soon as your operation improves pay more or restructure back to a shorter amortization. Not many have the discipline to actually just pay more because they want to, so if you think there is a chance you are one of those people…make it so you have to!
There is a wealth of information on the internet about farm debt levels, shortages, increases in short term debt, and need for restructuring of debts to make operations work. Well, if you are one of those who are in need of a restructure in order to make it work this year – read as much of that information as you can find. Read this article and then find more to read. You need to make an informed decision about the impact of your debt level on your future. We all have to make tough decisions to make it work in trying times, but don’t let those decisions have an impact on you for longer than they have to! Take back control as soon as you can and get back on track to that goal you had set!