Access to credit is increasingly important to producers managing tighter profit margins. With input costs stubbornly high and grain prices lower, working capital is down from its recent record highs.
Troy Andreasen, senior vice president for lending, emphasizes the growing importance of credit availability and managing working capital. "We're not operating on cash like we used to," he said, "so the ability to access credit is increasingly advantageous in our volatile markets.”
Working capital can be leveraged for significant purchases, including machinery or land. “The key is to manage it, so you still have enough working capital for your operations size, risk, and scope,” Andreasen said. “Managing working capital and having access to credit allows producers to take advantage of price discounts, which is key to improving margins."
Benefits of Leveraging Your Land Equity
For landowners, “lendable equity” can be an important credit tool. Andreasen said his financial officers are working with more landowners who are leveraging equity in their ground to lock in revolving lines of credit for five or longer years, providing reliable access to credit when it is needed most. AgCountry Farm Credit Services, for example, loans up to 65% of the ground’s appraised value for five years.
"Once you set this up, you secure credit availability for the next five or more years, providing access to credit on a longer-term basis helping you manage through volatile price cycles.
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The land equity line of credit offers the benefit of extended access to credit, with the flexibility of interest only payments. Producers also like the fact that they don’t have to reapply for a line of credit every year, Andreasen said: “This extended timeframe means they won't need to repeatedly request funds, which is crucial when opportunities arise."
Andreasen offered a scenario: "If a parcel of land becomes available and you decide to sell another piece to acquire it, your five-year line of credit can bridge the gap between those transactions."
The duration of the land equity loan, combined with the option to pay only interest, also requires producers to wisely manage their borrowing.
"This isn't for parking or carrying debt," he said, emphasizing its intended purpose. “Use it strategically for purchasing equipment, acquiring land, or covering operational costs, and then ensure you pay it off appropriately over time."
What Type of Ag Loan is Right for You?
If you're a landowner facing tighter margins and want a long-term financing option, our financial officers can help you determine what loan is right for your operation. Talk with a financial officer to:
- Assess your land's current value
- Calculate how much credit you can access
- Create a repayment strategy that fits your operation
