My operation isn’t going to be in a good financial position after this year. I’m trying to work closely with my banker to see what I can do. He said he’s willing to work with me to figure out some ways to help me get through this down cycle. He said he wants to look at what we can do around interest rates. He wants to look into the rates I’m currently paying on my operating line and the other notes I have. I don’t know very much about that. What can I do so I’m ready for conversations with him about it? — R.E., Nebraska
While it’s fine that your banker wants to look at interest rates, overall, there are other aspects of your operation that can impact your farm more drastically. You first need to get to the root of your operation’s financial problems, so you can devote your attention to working on whatever is most important to your farm’s bottom line.
Maybe you recently had production problems or other revenue-related issues. Pinpoint the primary issues and create a plan to deal with them this year. While reviewing your interest rates may be helpful, it won’t fix a major production or revenue problem that could be hurting your business a lot more.
When it comes to interest rates, take a look at your current notes and check whether they are variable or fixed. Work on your own or with a financial adviser to figure out if higher interest rates would adversely affect you. If they would, what can you do to mitigate that risk?
You can create stress-test scenarios — you or your financial consultant can develop these — to see how an increase in interest rates would impact your operation. You’ll also want to look at scenarios around the other main factors you’ve identified that have the biggest impact on your operation.
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When you talk with your banker, be sure to discuss what you’ve learned from the stress tests you’ve done on your business. Then talk about what you see as the biggest issues affecting your farm’s financial position — and your plan to address each factor.