Making money in cattle!

[libertygarden]

@Warren Allison no, it's not a HELOC (first time I hear the term). It's just a revolving line of credit from my local credit union fixed at 7.9%. I can repay at any time or pull more money at any time so long as I'm under my limit. Every month I have to make a min payment like you do with a CC. It just seems to easy to buy on credit that I'm afraid I'm missing something. I've always paid for my cows cash, but it does tie up money. So rather than paying cash, I'd much rather keep the money in my stocks and let the calves do the paying back.

 

[Travlr]

Warren, the issue I have with your theory is that no matter whether it's me personally or a company I have formed I'm old school and feel I am responsible for my debts. You state again that if the company looses money I would not be responsible. If someone looses money they should pay it back, period.

Exactly... If I borrow money I'm making a promise to pay it back. I don't take promises lightly, so I don't make them often.

 

[Brute 23]

I'm going to try to explain this as best as possible from my experience and from the experience of others I have gathered with out stirring up a mess. People don't have to agree or disagree, I'm just stating my view point. I'm going to use @libertygarden as an example because I think it's where a lot of people are in the cattle business, including myself. We all want or need a way to generate more revenue in this climate or are looking for a new adventure in some thing we love.

In my experience, taking a loan like that is just too easy and it effects the business choices. People need to have some skin in the game to add some hustle or awareness to the decisions of the start up. They need to sacrifice to save the cash, then hand that cash over at the AB, to then take calves home to show the commitment to their plan.

Go buy 1, 2, 3 animals, cash, and see what you can do with them. Gather some kind of info on what is takes to turn a profit on them. Can you even make more that the interest on them? Is the juice worth the squeeze? Do you even like doing it? Do you have time to do it? If you show up one day and those 3 calves are dead as a door nail under a tree, that loan is just going to make that situation worse.

Imo, a lot of those questions needs to be answered, experiences need to be had, and data needs to be gathered before some one just takes out a loan on an idea.

Do it on 2. Take your money, including the profits (hopefully), throw some on if you have to and buy 4, then 6. If you can see consistent returns, and it's every thing you hoped, and now you want to take half home and get a loan on the other half to keep going or if you want to increase your proven plan x2 or x3... I get it.

That is also my opinion on why small business should not take out loans until they can run a sample, even a small sample, to prove their idea, before considering loans.

When Exxon takes out $7B in debt, they are multiplying the returns or growth on their proven business model. It's not the same as an entrepreneur diving off in to a new, small business.

 

[libertygarden]

I agree with you 100%, @Brute 23. However, the loan, for me at least, would not be to purchase cows that I couldn't afford otherwise. My money would still be backing the loan, but it would be invested in other instruments like stocks or a conservative mutual fund that while they may go up or down on the short run it's a small risk that wouldn't keep me awake at night. With regards to first buying cows with one's own money before buying them on credit. I also agree with you 100%. I got my place in 2016 and since then I've been busting my ass working it by hand. Hell, I just got my first tractor last year after having dug more holes by hand for corner braces than I care to remember. I've poured a lot of sweat, pain, and money into that place, so I'm not exactly new to the party.

 

[libertygarden]

Probly way off subject here.
But you ain't gonna be buying 10 grazing calves around here for 7000

I watched 450lb HEIFERS bring 2.49 today

Edit to add...
Sorry. I should've put it in the calf sales thread. Your post made me chuckle a little even tho I knew what u were saying!

You are probably right. I just pulled a number to illustrate the example. If I were to proceed, I'd have to plug market rates to the spreadsheet to see if it's profitable.

 

[Otha]

Do you know the statistics on how many small businesses fail and how many succeed? Why do you think most small businesses fail? Bad debt management is number one.

And I'm not saying that debt can't be incurred and handled wisely. I'm saying that most people that advocate debt loads as a tool to building wealth are either excellent managers or on their way to the poor house.

Ya 90 something percent of small businesses fail. I bet that's due to more poor choices than just debt. Lots of bad ideas and poor business models regardless of debt or not.
That statistic has nothing todo with whether or not debt is a bad thing or that a small business shouldn't use debt. You're using statics which I appreciate in a debate but you aren't using statistics that support the argument you are trying to make.

 

[Brute 23]

I agree with you 100%, @Brute 23. However, the loan, for me at least, would not be to purchase cows that I couldn't afford otherwise. My money would still be backing the loan, but it would be invested in other instruments like stocks or a conservative mutual fund that while they may go up or down on the short run it's a small risk that wouldn't keep me awake at night. With regards to first buying cows with one's own money before buying them on credit. I also agree with you 100%. I got my place in 2016 and since then I've been busting my ass working it by hand. Hell, I just got my first tractor last year after having dug more holes by hand for corner braces than I care to remember. I've poured a lot of sweat, pain, and money into that place, so I'm not exactly new to the party.

I was just using your situation as an example not trying to tell you what to do. You have to play your own ball.

 

[Travlr]

Ya 90 something percent of small businesses fail. I bet that's due to more poor choices than just debt. Lots of bad ideas and poor business models regardless of debt or not.
That statistic has nothing todo with whether or not debt is a bad thing or that a small business shouldn't use debt. You're using statics which I appreciate in a debate but you aren't using statistics that support the argument you are trying to make.

Of course there are many reasons... but that doesn't negate the number one reason.

If you don't think that supports the idea that loans need to be carefully considered and often avoided I can't help you any further.

 

[Rafter S]

I've always thought it was hard enough to make money in the cattle business already without trying to make money for me and the bank. If others can do that, more power to them, but I'm not going to try it.

 

[Warren Allison]

@Warren Allison no, it's not a HELOC (first time I hear the term). It's just a revolving line of credit from my local credit union fixed at 7.9%. I can repay at any time or pull more money at any time so long as I'm under my limit. Every month I have to make a min payment like you do with a CC. It just seems to easy to buy on credit that I'm afraid I'm missing something. I've always paid for my cows cash, but it does tie up money. So rather than paying cash, I'd much rather keep the money in my stocks and let the calves do the paying back.

HELOC means home equity line of credit. Which means the amount of the line of credit would be limited to the equity in your home. Proaby much lower interest, and the interest is tax deductible, is the main f difference in a HLOC and what you have, Same basic principals thought

 

[Brute 23]

Ya 90 something percent of small businesses fail. I bet that's due to more poor choices than just debt. Lots of bad ideas and poor business models regardless of debt or not.
That statistic has nothing todo with whether or not debt is a bad thing or that a small business shouldn't use debt. You're using statics which I appreciate in a debate but you aren't using statistics that support the argument you are trying to make.

On my example, I think debt being so accessible and cheap encourages a lot of bad business practices and bad models among other negative things.

Im not against debt, but it gets thrown around very loosely. I'm not that guy... but when I listen to people like my brother talk about how billions of dollars worth of assets are leveraged to pay stock holders and things of that nature... it's a major process.

We are setting up a business deal and when he starts doing projections on earning, expenses, loan rates, assets, debt ratios (as some mentioned) to secure the loan... it's fairly complicated process (for some one like me), when done correctly. Part of our financial security is in that formula, not playing games with llcs or what ever, even though we use them.

It's this... if they will lend it I will use some one else's money... mentality that's gets us all in a bind, imo. Lenders are lending based off their sucess... not yours. That is a big misconception.

 

[Otha]

Of course there are many reasons... but that doesn't negate the number one reason.

If you don't think that supports the idea that loans need to be carefully considered and often avoided I can't help you any further.

I do think loans need to be very carefully considered, but carefully considers isn't the kind of language that started this debate a few pages back. Using debt should be considered more strongly than spending you own money, because as many have pointed out there can be more risk in using debt. Several pages back people were saying that debt is always bad and never works and stuff to that tune and I just wanted to see some hard number as to why that might be the case.
I appreciate your warning about the dangers of debt. There's defiantly a phycological thing that can happen with debt because it doesn't feel like your money. It's very important for people to be well aware of that bias. I do however at this time still believe debt is a useful tool as long as the right measures are taken in accruing it. Including proper debt/equity ratios, market considerations and insurance.

 

[Otha]

It's this... if they will lend it I will use some one else's money... mentality that's gets us all in a bind, imo. Lenders are lending based off their sucess... not yours. That is a big misconception.

That is a very good point. Having a banker that never says no probably isn't the best relationship to have.

 

[Lucky]

I'm going to try to explain this as best as possible from my experience and from the experience of others I have gathered with out stirring up a mess. People don't have to agree or disagree, I'm just stating my view point. I'm going to use @libertygarden as an example because I think it's where a lot of people are in the cattle business, including myself. We all want or need a way to generate more revenue in this climate or are looking for a new adventure in some thing we love.

In my experience, taking a loan like that is just too easy and it effects the business choices. People need to have some skin in the game to add some hustle or awareness to the decisions of the start up. They need to sacrifice to save the cash, then hand that cash over at the AB, to then take calves home to show the commitment to their plan.

Go buy 1, 2, 3 animals, cash, and see what you can do with them. Gather some kind of info on what is takes to turn a profit on them. Can you even make more that the interest on them? Is the juice worth the squeeze? Do you even like doing it? Do you have time to do it? If you show up one day and those 3 calves are dead as a door nail under a tree, that loan is just going to make that situation worse.

Imo, a lot of those questions needs to be answered, experiences need to be had, and data needs to be gathered before some one just takes out a loan on an idea.

Do it on 2. Take your money, including the profits (hopefully), throw some on if you have to and buy 4, then 6. If you can see consistent returns, and it's every thing you hoped, and now you want to take half home and get a loan on the other half to keep going or if you want to increase your proven plan x2 or x3... I get it.

That is also my opinion on why small business should not take out loans until they can run a sample, even a small sample, to prove their idea, before considering loans.

When Exxon takes out $7B in debt, they are multiplying the returns or growth on their proven business model. It's not the same as an entrepreneur diving off in to a new, small business.

You described very well how a smart person that understands how to run a business and a calculator should make decisions. You are right that most of the country is in over there heads with debt. I've been there and learned that lesson myself. I think Warren and I were just describing another way to use money without using your own.

I've got a line of credit similar to what @libertygarden describes. It's for 100k and has a yearly reduction payment for interest only if I choose to only pay interest, our cattle are the backers. I took it out for times like this when feed prices double and all the money is going out but non coming in. Your right that these types of loans can be dangerous to people that have spending or money management issues. However they can be very helpful if used correctly. I can spend that 100k on anything from a big screen TV to a load of feed, the banker doesn't know or care how I spend it. The bottom line is it doesn't matter how much you make or can get your hands on you have to know what your getting into and how to manage money. I know guys making 200k a year that have to wait until pay day to get gas.

 

[Lucky]

I'm going to try to explain this as best as possible from my experience and from the experience of others I have gathered with out stirring up a mess. People don't have to agree or disagree, I'm just stating my view point. I'm going to use @libertygarden as an example because I think it's where a lot of people are in the cattle business, including myself. We all want or need a way to generate more revenue in this climate or are looking for a new adventure in some thing we love.

In my experience, taking a loan like that is just too easy and it effects the business choices. People need to have some skin in the game to add some hustle or awareness to the decisions of the start up. They need to sacrifice to save the cash, then hand that cash over at the AB, to then take calves home to show the commitment to their plan.

Go buy 1, 2, 3 animals, cash, and see what you can do with them. Gather some kind of info on what is takes to turn a profit on them. Can you even make more that the interest on them? Is the juice worth the squeeze? Do you even like doing it? Do you have time to do it? If you show up one day and those 3 calves are dead as a door nail under a tree, that loan is just going to make that situation worse.

Imo, a lot of those questions needs to be answered, experiences need to be had, and data needs to be gathered before some one just takes out a loan on an idea.

Do it on 2. Take your money, including the profits (hopefully), throw some on if you have to and buy 4, then 6. If you can see consistent returns, and it's every thing you hoped, and now you want to take half home and get a loan on the other half to keep going or if you want to increase your proven plan x2 or x3... I get it.

That is also my opinion on why small business should not take out loans until they can run a sample, even a small sample, to prove their idea, before considering loans.

When Exxon takes out $7B in debt, they are multiplying the returns or growth on their proven business model. It's not the same as an entrepreneur diving off in to a new, small business.

You described very well how a smart person that understands how to run a business and a calculator should make decisions. You are right that most of the country is in over there heads with debt. I've been there and learned that lesson myself. I think Warren and I were just describing another way to use money without using your own.

I've got a line of credit similar to what @libertygarden describes. It's for 100k and has a yearly reduction payment for interest only if I choose to only pay interest, our cattle are the backers. I took it out for times like this when feed prices double and all the money is going out but non coming in. Your right that these types of loans can be dangerous to people that have spending or money management issues. However they can be very helpful if used correctly. I can spend that 100k on anything from a big screen TV to a load of feed, the banker doesn't know or care how I spend it. The bottom line is it doesn't matter how much you make or can get your hands on you have to know what your getting into and how to manage money. I know guys making 200k a year that have to wait until pay day to get gas.

 

[Travlr]

You described very well how a smart person that understands how to run a business and a calculator should make decisions. You are right that most of the country is in over there heads with debt.

Yup, he is correct...

It's for 100k and has a yearly reduction payment for interest only if I choose to only pay interest... Your right that these types of loans can be dangerous to people that have spending or money management issues.

And right there, (100K, reduction payment, interest only) is exactly the kind of loan that gets people in trouble. Basically the same thing as a credit card or Rent to Own. And the loan is secured by a commodity that exists in a fluctuating market... that has some pretty wide swings at times.

However they can be very helpful if used correctly. I can spend that 100k on anything from a big screen TV to a load of feed, the banker doesn't know or care how I spend it.

There is no doubt that some people are successful managers of debt, even dangerously designed debt. And you're correct that the banker doesn't care... as long as he has a fish on the hook.

Why do people/financial institutions loan money? Wouldn't they be much better off borrowing money, investing, and making a profit off OPM?

And I'm going to bet that the people here advising caution are those that have watched carefully and seen other people set the example for why they are cautious.

 

[Lucky]

Why do people/financial institutions loan money? Wouldn't they be much better off borrowing money, investing, and making a profit off OPM?

I don't think there's a bank in the country that loans it's own money. They borrow it from the Fed @ a prime rate then charge you a percentage above that. If you have a really good credit score you will generally get 1 or 2 points above prime but, if you have a poor score or don't know better it's game on. On the banks end there is some type of regulation on how much they can borrow based on cash deposits in their bank but I'm not real sure how that works. At least this is my understanding of how banks operate. If I'm wrong please let me know.

I actually know a few guys that live off the credit line. They know they'll sell x amount of calves every year to pay it back. Talk about gambling with someone elses money.

 

[Travlr]

I don't think there's a bank in the country that loans it's own money. They borrow it from the Fed @ a prime rate then charge you a percentage above that. If you have a really good credit score you will generally get 1 or 2 points above prime but, if you have a poor score or don't know better it's game on. On the banks end there is some type of regulation on how much they can borrow based on cash deposits in their bank but I'm not real sure how that works. At least this is my understanding of how banks operate. If I'm wrong please let me know.

I actually know a few guys that live off the credit line. They know they'll sell x amount of calves every year to pay it back. Talk about gambling with someone elses money.

No, you aren't wrong. Common knowledge. The point still stands.

 

[wbvs58]

I agree. If I am understanding it correctly, the idea is to set things up in a way so if things go south I don't have to legally pay back the money i borrowed. Sounds like legalized theft to me.

In my experience banks don't loan out money if there is not something tangible that they can take over to recover debt. I think the cheapest interest rate is when your primary residence is up as collateral. The greater the risk to them recovering money then the greater the interest rate they will charge to cover that increased risk.

Ken

 

[Travlr]

In my experience banks don't loan out money if there is not something tangible that they can take over to recover debt. I think the cheapest interest rate is when your primary residence is up as collateral. The greater the risk to them recovering money then the greater the interest rate they will charge to cover that increased risk.

Ken

Lenders can go after other assets if someone defaults on a loan and the collateral doesn't satisfy the debt.