Operating lines of credit are an important part of a farm?s business plan, but credit lines are being misused.
?Big-ticket purchases like machinery and equipment are tempting to finance when times are tough,? said Vince Bailey, Senior Vice President of Ag Underwriting with Farm Credit Mid- America. ?While margins are tight, resist the urge to dip into your operating line of credit unless you absolutely have to.?
Bailey says it is unwise to use operating credit for equipment purchases.
?Interest rates and total costs are typically higher for operating lines of credit that are designed to be utilized on an annual basis,? Bailey said. ?This is different than machinery financing, which is typically drawn up for a period of several years.?
How does this affect producers in the long run?
?Financing machinery with an operating line can lead to overspending because the debt associated with the asset being purchased isn?t clearly identified,? Bailey said. ?This disrupts the structure of an operation?s balance sheet and makes it difficult to track the true costs and debt retirement of an investment.
For more financial tips, insights and perspectives from Farm Credit Mid-America visit e-farmcredit.com/insights.
AUDIO: The Ohio Ag Net?s Ty Higgins visits with Farm Credit Mid-America?s Vince Bailey about planning for an equipment purchase.
