Mind Your Farm Business, Ep. 50: Leverage and liquidity — making the most of a low interest rate environment

In an era of “cheap” money, farms could take advantage to solve working capital shortages, set aside savings, or plan for a business transition. But debt restructuring, or taking on more debt even at low rates, is not without its pitfalls.

For this episode of the Mind Your Farm Business podcast, Terry Betker, president, and CEO of Backswatch Management unpacks what a low-interest rate environment might mean for farms at all stages of business maturity.

Solving a working capital problem — being asset rich, but cash poor — is a great reason to restructure, Betker says, but too often, farms that take on a restructure often don’t go far enough. There are emotional or risk-aversion reasons, perhaps, to want to limit big numbers for long-term debt, but he says it’s better to do it right the first time, rather than re-visit a lender 18 months later for the same reason.

In looking at the decision, Betker says it’s important to determine what working capital is needed and what the residual debt servicing commitment looks like.

Low-interest rates should also spur discussions on business transition, too. Succession planning is a business management task, as emotionally-charged as it can be, and shouldn’t ever be a short-term event. Low-interest rates can be a great catalyst for planning out the next five, 10, or 15 years for the business transition and intergenerational transfer of assets.

Listen on for a discussion on interest rates, locking in rates, and more in this Mind Your Farm Business episode:

Disclaimer: Royal Bank of Canada and its subsidiaries are not responsible for the information provided in this podcast, and this information does not necessarily reflect the views of Royal Bank of Canada or any of its subsidiaries. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its subsidiaries.

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