Paying down debt....

[Happy at it]

Might be a silly question given there's so many variables, and given we're just coming out of a spell of pish poor prices, but what's your views on taking on debt these days? What would a reasonable time frame to expect/hope to pay back a figure in round £2500 a cow, on your farms, based solely from the returns from farming?

 

[Beef farmer]

For me it would depend on what the money was being borrowed for.

 

[Will Blackburn]

At least 10 years? Depends upon what sort of business you want at the end of paying it off?

 

[Steevo]

Shortly after the dispersal sale....?

Sorry, probably a little unfair.

 

[Princess Pooper]

Might be a silly question given there's so many variables, and given we're just coming out of a spell of pish poor prices, but what's your views on taking on debt these days? What would a reasonable time frame to expect/hope to pay back a figure in round £2500 a cow, on your farms, based solely from the returns from farming?

It all depends on what else you can 'flex'. Our bank manager refused us a loan to buy quota many years ago as said we could not repay it in the required 5 years. We went elsewhere and paid it back in 3. Minimal drawings for those 3 yrs and no equipment bought, but the quota was needed to produce more milk so pretty damn important.

But as others have said, it depends what your borrowing is for. If it was for land and buildings, silage/slurry stores etc then I'd be relaxed about paying it over 20 years. If some if it was for buying cows then 3-4 yrs max. If some of it is for buying fertiliser and feed then within 12 months. Borrowings should be properly structured, not all lumped together. Remember that an overdraft is payable on demand.

 

[Sid]

Two points.

Allow for the fact you may want to pay off early.
Allow for the fact you may want to delay payment.

Buying an asset that is saleable or depreciates is different from buying an asset that you can sell off. Land v slurry storage/buildings v cows/machinery.

 

[pappuller]

land upto 25 years dependant on cost.
plant and machinery upto 10 yrs (tractor on 5yr, robots on 10)
stock pay on purchase
fert etc extended terms only ie deliver july/aug pay dec jan
never try and pay debt too quickly if it is going to impact on short term cashflow, after all cash is king and a little bit in the tank for a downturn is always sensible.
sheds and infrastructure always try and pay as we go on that one

 

[lazy farmer]

Might be a silly question given there's so many variables, and given we're just coming out of a spell of pish poor prices, but what's your views on taking on debt these days? What would a reasonable time frame to expect/hope to pay back a figure in round £2500 a cow, on your farms, based solely from the returns from farming?

For me it is as simple as knowing your cost of production including tax and drawings so you know how much free cash you have to throw at the debt at any given price. it would give you a break even milk price and help you work out a realistic length of time for the loan.
Of course you would also need to factor either the cost reduction of your investment or the extra profit produced by increased production into your figures if you are assuming you think costs will stay the same
Personally I loath debt so investment is usually done through the overdraft and land is done over 10 yrs and usually paid for early if there's is no interest penalty.

 

[pappuller]

For me it is as simple as knowing your cost of production including tax and drawings so you know how much free cash you have to throw at the debt at any given price. it would give you a break even milk price and help you work out a realistic length of time for the loan.
Of course you would also need to factor either the cost reduction of your investment or the extra profit produced by increased production into your figures if you are assuming you think costs will stay the same
Personally I loath debt so investment is usually done through the overdraft and land is done over 10 yrs and usually paid for early if there's is no interest penalty.

Dont think anyone if they're honest likes debt, but it is somtimes necessary to grow a business I couldnt have grown my business without incurring debt over the last 5 years, but then the question arises as to whether you wish to continue growing or consolidate ? That all depends upon what opportunities present themselves.

 

[lazy farmer]

agree it does come down each individuals comfort levels.
my main criteria are will it makes us more self contained? will it reduce costs? or will it make things simplier?
Far too many things are bought for dairy farms that do none of the above as far as I can see..

 

[Rossymons]

Debt in itself is no bad thing so long as something meaningful comes out of it - land or extra facilities for example

Buying things like cows and tractors gets me a little twitchy.

Racking up debt to pay for feed or fert bills would bring me out in a cold sweat!

 

[Blue.]

Debt in itself is no bad thing so long as something meaningful comes out of it - land or extra facilities for example

Buying things like cows and tractors gets me a little twitchy.

Racking up debt to pay for feed or fert bills would bring me out in a cold sweat!

Ive never borrowed on anything other than land,I always pay for any expansion as and when,that way if things get tight you just sit back for a month or two.

 

[pappuller]

Might be a silly question given there's so many variables, and given we're just coming out of a spell of pish poor prices, but what's your views on taking on debt these days? What would a reasonable time frame to expect/hope to pay back a figure in round £2500 a cow, on your farms, based solely from the returns from farming?

I think the answer to your question is however long you feel it should be depending on what the borrowings are for.some ace replies for you and I'm sure many more to come.

 

[Penmoel]

Ive never borrowed on anything other than land,I always pay for any expansion as and when,that way if things get tight you just sit back for a month or two.

Out of interest, the new Fendt a year or two ago surely you would have used the subsidises finance?

Buying a tracor ourselves now outright 2,nd hand so need to sell one,or two ASAP,, thinking of using the overdraft to do so, so long as it does not leave us too tight and can be brought down. Don't really want a hard core of borrowing on od.

 

[Courier]

Factor in an interest rate rise of 2.5 or 5% and stress test the business and remember that historic average interest rates are nearer 10%.

 

[pappuller]

Factor in an interest rate rise of 2.5 or 5% and stress test the business and remember that historic average interest rates are nearer 10%.

Or fix a large % now for the long term

 

[multi power]

Out of interest, the new Fendt a year or two ago surely you would have used the subsidises finance?

Buying a tracor ourselves now outright 2,nd hand so need to sell one,or two ASAP,, thinking of using the overdraft to do so, so long as it does not leave us too tight and can be brought down. Don't really want a hard core of borrowing on od.

What you selling, 5000 ?

 

[multi power]

Ive never borrowed on anything other than land,I always pay for any expansion as and when,that way if things get tight you just sit back for a month or two.

Very wise indeed

 

[Rossymons]

Out of interest, the new Fendt a year or two ago surely you would have used the subsidises finance?

Buying a tracor ourselves now outright 2,nd hand so need to sell one,or two ASAP,, thinking of using the overdraft to do so, so long as it does not leave us too tight and can be brought down. Don't really want a hard core of borrowing on od.

On one hand we're quite indebted and the other we aren't. I know that sounds a bit funny but bear with me.

We have an overdraft that I consider as debt - which in this case i'll call "bad debt". This debt i'm looking to get rid of.



We also have HPs for tractors, straw chopper and and something else. We also have 2 mortgages. I consider the HPs a necessary evil - we have nice, modern and well maintained kit that does the job well and doesn't cost a fortune in repairs. We run as little machinery as possible as a rule so the couple bits I do have I want to be reliable. Over time these are steadily reducing - one of the tractor HPs we've rolled into a new one and kept the existing tractor so we're paying less AND have the extra tractor. Some of the things - straw chopper for example - won't need to be replaced when that HP finishs so that disappears.

The mortgages I don't worry about at all.

The only people we owe money to are the bank.

Either way - bar the overdraft - the HP and mortgages are being comfortably met through cashflow. So i don't consider them "debt" as such. Its probably not the textbook definition of debt but it is how I see it.

 

[Manney]

Just out of interest does anyone know what the average level of debt on a uk dairy farm is per cow?