Cattle Expansion Funding
- Thread starter TTBHG
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1982vett
Well-known member
Credit is a tool. As with any tool, abuse it and things break.
Rafter S
Well-known member
. . . or the added risk, which is an added factor many people don't consider.
Rydero
Well-known member
Having more head to spread expenses across is less risky, if you have 10 head and blow a rear tractor tire it's a big deal. Not so much with 750.
The overall cost/head of feed is identical or often lower because you can negotiate better deals when you buy more in one shot. You can also utilize lower cost byproducts etc more efficiently because it's also spread out over more animals and a lower percentage of the overall ration.
Every company that's traded on a stock exchange is basically borrowing money to fund growth, there's some successful companies on there. They know that if they borrow money as long as the rate of return is higher than the interest than they're making money. Growing organically can be painfully slow in a capital intensive business. To each his own - if these concepts don't make sense to you you probably shouldn't borrow money.
The overall cost/head of feed is identical or often lower because you can negotiate better deals when you buy more in one shot. You can also utilize lower cost byproducts etc more efficiently because it's also spread out over more animals and a lower percentage of the overall ration.
Every company that's traded on a stock exchange is basically borrowing money to fund growth, there's some successful companies on there. They know that if they borrow money as long as the rate of return is higher than the interest than they're making money. Growing organically can be painfully slow in a capital intensive business. To each his own - if these concepts don't make sense to you you probably shouldn't borrow money.
callmefence
Keyboard cowboy
The risk is there you know....no matter where the funds come from.
Rafter S
Well-known member
Absolutely. Debt just adds more.
USDA MicroLoans ($50k max) are much less demanding than other types of USDA equipment loans and the person you deal with at the FSA office has almost complete discretion on deciding if you can get the loan. They have a bit of paperwork to get done but my startup loan was deposited 9 business days after I submitted my application. Buying cattle is considered an equipment loan which is the simplest type and my terms were 5 years @ 1.75%.
Then don't. I really don't understand your fascination with this thread. If you don't want a loan; don't go get one. You've not added a single piece of usable advice for those of us that are comfortable using loans for expansion.
I could work the math for you why it's a great tool if used properly but something tells me I'd be wasting my time. Enjoy your Thanksgiving.
Using credit is good and bad depending on the need. I have worked with the same bank for the last 12yrs and my father worked with the same bank for 20yrs before that. They know our operation and know cattle/farm risks. 4yrs ago we decided to expand and put in a new pivot and mainline. The banker said we should do it all (1 additional pivot, 2 wheel lines and all the piping) but I was wanted to be safe and do it slowly. Well now today, that same expansion is twice the cost as it would have been. Just one pivot is more than the rest of the expansion. So being safe is good, but sometimes it can cost you more money in the long run.
Also we have never put up land as collateral, so all we loose is cattle or equipment. We can always rebuild, but don't ever want to have to buy ground again especially at today's prices. Luckily we don't owe much and trust our banker. If he says go we do it, but if he's says he wouldn't we wait.
Also we have never put up land as collateral, so all we loose is cattle or equipment. We can always rebuild, but don't ever want to have to buy ground again especially at today's prices. Luckily we don't owe much and trust our banker. If he says go we do it, but if he's says he wouldn't we wait.
Borrowing money is not all that bad an idea, if you are reasonably sure there could be enough profit to have some money left after the loan is paid. Back in the late 70's ( after I turned 18) and early 80's, we still had local banks around here. The one in my hometown (population 93 in 1975, and still is between 90- and 100) was owned primarily by the cotton farmers. My best friend's dad was prez, my girlfriend's mom was manager, and all of the stock holders were just about kin to everyone. I would go to horse sales on the weekends, buy horses and write a check, and call Bill's dad Sunday and tell him what I had wrote a check for. He'd tell me to come in that week and sign a note...he'd have it ready when I came by. Back then the checks were all mailed to the bank, and most of the time I would have the horse or horses sold by the time the check got there.
In the 80's my rodeo partner and I, would go by the bank and tell them we were gonna go by some cows. Ms. Sue would ask what we needed, and we'd get a line of credit for 25 to 50k. If we spent over that it wouldn't matter... she'd just up it. We would call or go by there on Monday, tell her how much we spent and how many we bought, and that was that. We were mostly buying heavy bred cows, then we'd take them back to the sale after calving and sell them as pairs bred back. Not a lot of risks, as we never paid more for the cows than they would bring at the very next sale. We did this for 6 or 8 years. Whenever we heard of a pasture for rent, we'd go get it and buy every how many cows it would hold. Back then, you could rent a lot of pastures for just repairing fences, etc.
These days, I probably wouldn't fool with any of the national banks. The last local bank I used sold out to Wells Fargo a couple of years ago. I have a couple of S Corps and 1 LLC that I could borrow money via them, and not have to guarantee loans personally with that local bank. I know I wouldn't borrow funds personally these days to buy cattle, unless I already had them sold before I bought them. But the OP, @callmefence and others are right. If you really wanna make money, use OPM, not your own if you can.
In the 80's my rodeo partner and I, would go by the bank and tell them we were gonna go by some cows. Ms. Sue would ask what we needed, and we'd get a line of credit for 25 to 50k. If we spent over that it wouldn't matter... she'd just up it. We would call or go by there on Monday, tell her how much we spent and how many we bought, and that was that. We were mostly buying heavy bred cows, then we'd take them back to the sale after calving and sell them as pairs bred back. Not a lot of risks, as we never paid more for the cows than they would bring at the very next sale. We did this for 6 or 8 years. Whenever we heard of a pasture for rent, we'd go get it and buy every how many cows it would hold. Back then, you could rent a lot of pastures for just repairing fences, etc.
These days, I probably wouldn't fool with any of the national banks. The last local bank I used sold out to Wells Fargo a couple of years ago. I have a couple of S Corps and 1 LLC that I could borrow money via them, and not have to guarantee loans personally with that local bank. I know I wouldn't borrow funds personally these days to buy cattle, unless I already had them sold before I bought them. But the OP, @callmefence and others are right. If you really wanna make money, use OPM, not your own if you can.
I was responding to some of the stupid remarks. Nothing to do with you any more. You made it clear you want a govt loan, my tax dollars, to fund your business expansion.
Stocker Steve
Well-known member
Conventional thinking is you need to rent land till you own the cattle outright, then it is OK to borrow for land.
But interest rates are crazy low. So is it different this time?
But interest rates are crazy low. So is it different this time?
I suspect you don't pay enough in federal taxes to accuse anyone of using your money to fund their expansion.
Enjoy your day, buddy.
If you can borrow money for your operation at 1.75%, like a previous poster claimed, you'd be insane not to take every cent you could get. Inflation alone is rising faster than that so your own money is costing you more to use over a five year period versus that loan.
That doesn't even account for the opportunity loss cost of waiting to expand versus doing it now. Again, the math is quite simple but I suspect even if it was laid out in simple terms it would be labeled as fake news.
Again, if folks don't want loans then they should absolutely not get one but these folks commenting about how loans are worse than the devil are completely uniformed.
Dave
Well-known member
Realize that there is always some negativity that arises here. Especially when the idea is contrary to what some people do. Suggesting going full time into cattle will really bring that out. Just manage the credit correctly and don't get extended too far out where a crash will take you down. A crash will hurt but if you are not over extended you will survive. Strangely I know two different men who got over extended. The market took a down turn and both went bankrupt. However both of them learned from this painful experience and have both come back and are doing very well. And they were back up and running quicker than one would think.
This is pretty much advice for everything in life. Having a drink is fine. Having twenty isn't. I think when people hear loan they instantly associate it with overextending oneself.
Credit is an amazing tool for a business if you use it correctly and responsibly. Especially when used for an appreciating asset instead of a depreciating asset.
Yep, at 1.75%, I'd borrow every dime I could. A man would be crazy not to. @TTBHG, you are right about the fact that there are many on here that will holler "fake", and say you are lying, if you post anything that they know nothing about, or is contrary to the way they have always done things.
Stocker Steve
Well-known member
If your health is good AND you can cash flow it AND there is no immediate value trap AND you enjoy it - - then why not.
The medium term threats I can see for beef production are fart taxes, fake meat, and bio fuels. I would not put if beyound Biden and the Squad to do something really really dumb.
I'd feel more comfortable getting a loan on a rental house having a tenant pay the loan. Than on cows not knowing how the market will go.
I see both sides to this. I personally am not getting a loan. I don't need anything I can't pay for. There are lots of ways I could borrow money open businesses make money just not my way of making a living. I don't borrow from Peter to pay Paul. Bad karma.
Stocker Steve
Well-known member
One neighbor has loaded up on new zero interest green equipment the last couple years, and insists his financed machine shed contents are making him money.
Have I missed out ?
Have I missed out ?
