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Million dollar loans aren't really that strange for farmers. It is definitely a lot of money, but usually it's secured by assets that are objectively valuable t
by austenallred 9y ago
Million dollar loans aren't really that strange for farmers. It is definitely a lot of money, but usually it's secured by assets that are objectively valuable themselves (land).
My father in law started out as a humble hay farmer in the middle of nowhere in Utah, but he could easily retire on the appreciation and equity he built in the land he owns alone (though he's the type that would never sell it, and he's already rich).
- mfoy_ 9y agoIn this case the loan is to build barns, not buy more land. And the barns are specifically for raising chickens. If the contracts or the poultry processing in that area fall through then I don't think the underlying assets would be worth their cost-- leaving the farmers high and dry.
- deleted 9y ago[deleted]
- bluGill 9y agoTrue, but the bank won't be giving those loans if they think the contracts will fall through. Even if the contracts fall through, chicken demand is a known quantity. The farmer has opportunity to find someone else to buy his chickens.
- kgwgk 9y agoYes, because banks never give loans to people who is later unable to pay back. And chicken prices can only go up, like house prices.
- austenallred 9y agoWell in this case the assets will be chickens and barns. Certainly there's risk, but the likelihood that either chickens or barns rapidly become worthless is quite small. Unlike the housing crisis, they don't need the prices to continually go up. They just need them to not fall through some floor.
- mason240 9y agoExactly. Farming is a very capital intensive business, I'm not even sure why this very note worthy. I work for a small financial company that lends money to farmers on an annual basis for seed and chemicals. Even small crop farms typically borrow $200k+ every spring and then pay back at harvest, and that's just for seasonal operating costs.