Higher net worth people know from experience that the key to growing and storing wealth is through leveraging real estate, particularly agricultural real estate. As the saying goes about land, “it’s the one thing they’re not making more of.” Many people with wealth prefer to store it in land, particularly farmland. As the global population continues to increase, so does the value of the land used to grow food for the planet. As the number of mouths to feed rises, farmland becomes even more essential.
The public often assumes that the wealthy keep their money in the stock market, and many do. However, investing in farmland provides several benefits, one of which is diversifying the real asset portions of their portfolios. Farmland gives the investor the ability to realize a gain in two ways: through leasing, farming, or share cropping the property, and through appreciation on the value of the land. When the income and the appreciation are combined, the return farmland delivers can rival many other investment choices.
Investments
Unlike some other investments, buying farmland is a long term, illiquid investment. For this reason, farmland investments tend not to suffer the volatility of the stock market. It’s a stable investment that has performed well over time. For example, during the past 48 years, farmland in the U.S. has yielded returns of 10% or better. More recently, during the period from 1992 to 2016, farmland yielded an even more impressive 12% return compared to real estate’s (NCREIF) 8.7% return, or the Russell Stocks Index 3000 which returned 8.8%*.
The simplicity of the idea of farmland investing doesn’t mean it’s simple to do. To maximize the creation of value through revenue, appreciation, or tax benefits, it’s helpful to have an experienced hand in your corner. The FCI team has helped numerous clients finance and acquire farmland as an investment. Contact us to discuss how you can take advantage of the inverted yield curve and the low long term real estate rates available for the best clients. We can help investors secure long-term, fixed rates for agriculture real estate in the 3%-5% range. Call today so that we can find the option that best fits your needs.
An oilfield equipment services company that serves customers in Oklahoma and surrounding areas has seen and weathered the ebbs and flows of the energy sector economy. Having adequate access to working capital is critical to sustaining this company’s success. Since September 2018, the company has used BusinessManager as an affordable source of working capital that is helping it deal with longer payment cycles for its receivables.
The time it takes customers to pay invoices can create cash flow challenges for this firm and others like it in the industry. “If a customer pays us in sixty days, we consider that an extremely good customer,” said the chief financial officer at the firm. “For the most part it’s 120 days before invoices are paid.” Some customers have also filed for bankruptcy, which then leaves the company holding receivables that aren’t collectible. Customers who go out of business and the lengthy collection cycle makes having adequate working capital very important to sustaining successful operations.
Prior to using BusinessManager, the CFO had opted for factoring as a means of getting working capital, but it was not without its problems. Factoring companies will sometimes directly contact clients who have outstanding invoices, essentially making collections calls to clients without the knowledge of the business. “That was a huge issue for us,” said the CFO. “We definitely hated it. We actually had one customer who told us if we factored, they would stop doing business with us.” For this reason, factoring was less than ideal as a source of working capital.
The CFO learned about BusinessManager as an alternative for working capital from Charlie Loomis, CEO of Financial Consultants, Inc. Loomis began the relationship by simply talking to the CFO to understand the needs of the firm. “There for a little bit, we were communicating almost daily,” said the CFO. “He was trying to understand our needs and it (BusinessManager) was something that he felt would help us, would work for us short and long-term. Instead of just presenting us an idea, I felt like he really got to know us before bringing anything to the table.”
BusinessManager is an innovative Accounts Receivable financing program. It’s an ideal source of working capital for businesses like this one. BusinessManager provides predictable cash flow by providing up to a 90% advance on current and future A/R balances. The use of BusinessManager by a business remains transparent to the customers of that business. It is a low-cost way for a business to have capital to make payroll, remit payables on time, increase inventory, or pursue new business opportunities.
This firm found that BusinessManager was more affordable than factoring. “It’s definitely cheaper. We’re paying quite a bit less than we were with the other party. It’s also easy. It puts money in your hands. I really have no complaints about it. I feel like the way they do it and run it are really good.” The CFO feels that the company is getting value from BusinessManager. He liked how Loomis and the FCI team worked to identify the best option for working capital: “He’s not trying to do what’s best for him and what’s going to make him money, but what’s best for us long term.”
The team at Financial Consulting Inc. can help you make the right choice for your business to obtain working capital. With our extensive network of partners, we can simplify the process finding a trustworthy financial partner. Contact us to learn more!
Dustin and Shelly Van Cleave spent almost 14 years planning, researching and developing their vision for an angus seedstock operation that is today a successful operation known as the VC3 Angus Ranch. After selling a family business, the couple embarked upon their dream to start the VC3 Angus Ranch in 2017. They had a rock-solid business plan in hand and felt good about securing a ranch loan.
“We had worked on a business plan for years and felt like that was top notch,” said Dustin. With such a strong business plan, the couple was certain that findind a ranch loan would come easily. “We really thought it was just going to be simple, but that was just naïve, I guess.”
Working with their local banker, they had planned to pursue financing through the Farm Service Agency (FSA). “We knew we were going to use the FSA in conjunction with the bank on some guaranteed top loans,” Dustin related. “We approached the FSA and we were really shocked to find out they don’t speak the same language as a bank! The requirements for all the boxes that you have to check for each of them are so different. It was really overwhelming.” While the bank was encouraging about the credit-worthiness of their business plan, their banker suggested that if they planned to involve the FSA, they should speak to a loan packager. “I just could not imagine why we needed to do that because the bank could see it was a deal, our credit was great, we had plenty of money, and we had what we considered a very solid and safe business plan,” said Dustin.
Dustin and Shelly were introduced to the team at Financial Services Inc. (FCI), a team of experts with combined industry experience of over 40 years. FCI specializes in helping business owners, farmers, and ranchers access financing to help them succeed. The couple met with Charlie Loomis, who was able to help the Van Cleaves position their operation properly to successfully navigate the FSA loan process.
A barrier to the loan process was getting the FSA to understand the VC3 Angus Ranch operation. “It’s a registered seed stock operation, and the FSA doesn’t really keep good data on that,” observed Dustin. “They want to know what a calf is going to bring when it’s weened, when it runs through the sale barn. And that’s not the business we’re in. But that’s the kind of data they understood. Our operation is a lot different. We carry our bulls out to 18 months and sell them as semen-tested breeding stock, top bulls and same thing with our heifers, we breed them back. But, that’s not data that the FSA really looks at. We were using language with them that didn’t fit their criteria and check their boxes.” Working together, FCI, the Van Cleaves and their bank were able to clear away the misunderstanding about how the VC3 Angus Ranch operates, and package a loan application that the FSA approved. “I just don’t know how we’d ever would have gotten any of this done without Charlie’s help,” Dustin concluded. “In fact, I know that we couldn’t. I assume everybody that’s done what we’ve done has had to have someone exactly like Charlie to help get it done.”
FCI’s business is to help farmers, ranchers, and business owners get access to financing and find ways to increase liquidity and cash flow through smart financing and strategic relationships. To see how the FCI team can help you, contact us using the form, or simply call: (918) 762-2271.
Brian Rogers farms near Aline, Oklahoma, where he also provides mechanic services and runs a custom hay business to supplement his farm income. He went through a period of financial difficulty and needed some help to get through it. “With commodity prices the way they are, it’s a little tough on us little guys,” said Rogers. “Everywhere we can save money, it makes a big difference.” At the suggestion of his bank, Rogers met with Charlie Loomis of Financial Consulting, Inc. (FCI). The two met to assess Rogers’ situation, and together they came up with a plan.
The FCI team has a combined industry experience of over 40 years, and Loomis himself has been helping farmers and agri-business owners since 1999. From this base of experience, Loomis determined that refinancing existing debt could substantially improve Rogers’ position. “Charlie said that we could go through with FSA loans and get my interest rate down,” said Rogers. “We did that, and that move saved me over $30,000 a year just on interest. I would never have gotten the loan without Charlie knowing the ins and outs of the FSA loans. Pretty much everything he’s done for me has been a very, very smart financial move.”
Rogers continues to work with Loomis and the FCI team to get advice about financing his operation. “This year, I wanted to build a shop to be able to maintain my equipment,” added Rogers. “They were able to help me see how to make that work into my budget and make a little extra money. I’m a mechanic, so it just gave me another place to work and better place to maintain my equipment.”
Today, Rogers’ business is in a better place, and he gives a lot of credit to the FCI team. “My experience with everybody there is just fantastic, because I probably wouldn’t be in business without them,” Rogers concluded. “With him getting me the better rates, terms, it’s made the difference, like night and day. Charlie has sure helped me a bunch. We’ve had a very, very good relationship.”
FCI routinely assist farmers, ranchers and business owners get access to financing through programs like the USDA Farm Service Agency loan program, and find ways to increase liquidity and cash flow through smart financing and strategic relationships. To see how the FCI team can help you, contact us using the form, or simply call: (918) 762-2271.
My dad was a carpenter by trade, and we also had a small farming operation. I have many fond memories of my dad figuring numbers for jobs, supplies, measurements, plans, ratios, average daily gain, yields, and much more. Numbers like these are the vital statistics of a business. As a business owner, you need to know your numbers. One of the most important numbers you should know is working capital. What is it and how do you get it?
Working capital is the life blood of small business. If your business must wait for 30 days or more to get paid for work you have already done, then you are likely feeling the pinch of reduced working capital. In your business, sales, materials, labor, and overhead must continue even if cash is not pouring into your business every day. There is also the issue of being ready and able to strike when the time comes. If you are in an industry sector that is prone to rapid growth, without adequate working capital you can miss opportunities for exponential growth.
Working capital is the difference between your current assets and current liabilities. It measures your liquidity and it’s therefore an indicator of the short-term financial health of your business. The problem with working capital is that not all forms of current assets have equal value. Sometimes your working capital is frozen in your inventory or accounts receivables, doing you little good if you need cash to cover operating expenses, make normal debt service, pay payroll, or payables. These demands on your cash will not wait.
For many businesses, working capital is frozen in inventory or accounts receivable, limiting growth.
One Option: Lines of Credit
One solution to cash flow problems is a line of credit provided by a bank. Because lines of credit are forms of debt, you must qualify for one. The irony is that a line of credit is easy to qualify for when you don’t need one, but difficult when you do. The process is time consuming, and seldom is the line large enough. A line of credit can make a bad situation worse by putting your business in a debt trap. If your line of credit grows faster than your inventory or receivables convert to cash, you’ll incur excess debt that compounds the very problem you were trying to solve in the first place. The reality is that lines of credit are debt instruments that further reduce true working capital. It’s important to keep in mind that access to cash through a line of credit it is not the same as having your own cash. Ultimately, it is your responsibility as the business owner to know how much cash your business needs and how much you can afford to pay back.
While lines of credit are among the cheapest forms of outside working capital, they are no bargain if you don’t use them properly. Astute financial managers that exercise discipline and maintain tight controls can make effective use of a line of credit. Where lines of credit are used to supplement cash flow, just be careful. If your company has a strong cash position, a short cash conversion cycle, and generally strong financials, a line of credit may provide a good solution for you.
Another Option: Merchant Cash Advance or Business Loan
A much faster way to get cash is through a merchant cash advance, sometimes simply known as a business loan. These products are offered by seemingly respectable companies, some of whom are publicly traded. Approval can often come within 24 hours and cash within 24-36 hours. However, this option is a trap. Many of these companies use various bait and switch tactics or other deceitful techniques to lure clients in. They may advertise low or no-interest loans in exchange for fees that can amount to effective rates of greater than 50%. These companies will want to review your bank statements and then will very quickly offer you funding which they can have in your account the same day or the next, and they won’t even require any collateral.
Using a merchant cash advance can lure an unsuspecting business into a high-interest debt-trap.
These deals will fund quickly and then they will begin to withdraw to receive their payback daily, often the next day. The daily withdrawal will seem much less painful than the full amount they will take from you monthly. We have seen deals like this offered to clients with fees in excess of a 70% effective interest rate. It is not uncommon for these companies to give you one smaller cash advance loan and then stack two or three more on afterwards because of your good payment history. They resort to this tactic, not because they couldn’t qualify you for more debt to start with, but because they didn’t want to scare you off with a larger payment. You should run from these predatory credit providers as fast as possible.
Yet Another Option: Factoring
Factoring is a type financing that alleviates cash flow problems that result from slow payment of invoices. Factoring, sometimes called Accounts Receivable (AR) financing, allows you to secure financing using the value of your invoices. Although not usually as fast to obtain as a merchant cash advance, factoring is usually faster than applying for a line of credit. A factor (the company providing you with cash) will purchase your receivables, usually with recourse. This means that if your client ends up not paying an invoice, then the factor will usually come back to you and have you pay back the uncollected amount. The good news about factoring is that it is an asset purchase which means that you are simply trading out a stale asset AR for a liquid one: cash, without incurring debt. Factoring does away with the debt trap concerns associated with lines of credit, because it only advances funds for work that you have completed. Because the factor is repaid as your invoices are paid, this type of financing is self-liquidating. There is no way you can draw more than what you have already billed out.
Factoring, however, is usually a more expensive option. A typical factoring agreement is “close ended”, meaning it has a pre-determined duration, usually a year. You are typically required to notify the factor in writing before the agreement expires it you want to terminate it. If you decide to terminate the agreement early, there are often fees owed to the factor for what it estimates you would have funded had you let the agreement run full term.
Your use of a factoring company is generally not transparent to your clients. For example, if you use a line of credit, your bank would not typically call your clients to say, “we are now financing your vendor, and you need to just send us what you owe them.” Factoring companies, however, sometimes call your clients and let them know that they now own your AR and that payment needs to go directly to the factor. Should your client’s payment drag out further than expected, they may get a collections call from your factor, which may create problems in your relationship with those clients. Customers sometimes have strong, negative reactions to these calls, and adopt a stance that if they hear from your factor about your invoices, they won’t use your business for future needs.
Factoring will typically involve a small initial fee. Then, as your invoices age past certain dates, you incur additional fees. These fees can vary significantly on each invoice, making it hard to know your all-in cost. Because a Factor is not a bank you will also usually pay wire fees to get funds into your operating account.
The Best Option: BusinessManager® Line
BusinessManager® is a working capital financing solution offered through many of our commercial bank partners. It is a cash management tool that brings the best of all the other options we’ve described. Like factoring, it is an asset purchase funding tool and therefore does not require a business owner to take on additional debt. Like a line of credit, BusinessManager® is transparent to your customer. The underwriting requirements are relaxed, and the funding process moves along quickly. BusinessManager® lines are typically approved at 1.5 times your average AR balance and are elastic in nature. This means, the capital it provides can grow with the funding needs of your business. While the rates are higher than a traditional line, they are cheaper than factoring.
This table summarizes the working capital options discussed in this article:
The team at Financial Consulting Inc. can help you make the right choice for your business to obtain working capital. With our extensive network of partners, we can simplify the process finding a trustworthy financial partner. Contact us to learn more!
BusinessManager® is a registered trademark of ProfitStarts® a division of Jack Henry & Associates, Inc. ®
Oklahoma is a wonderful place to live and work the land. However, having enough capital to sustain your farm isn’t always easy. For the Oklahoma farmer who’s trying to get farm loans to stay afloat, here are some things to look out for.
Margins are tighter than ever. The cost of land and equipment have driven up the fixed cost to higher levels than ever before and price changes for final products happen constantly. With varibles like these you need an experienced, and trusted financial partner who can get you the financing you need that fits your operational capacity. That financiang may be through the Farm Service Agency or it may be through a more conventional loan product.
A little research might show you that there are more ways to get working capital than you’d expect. With a farm loan that’s designed for your specific needs, you can finance your operation and build a long-term sustainable plan for financial success.
It’s not easy to start or maintain a farm or ranch, but it’s certainly worth the effort if you can make it work. If you need more information about the financial side of farming, visit Financial Consulting Inc. in Pawnee.
Small business owners are the backbone of our economy. Whether you’re financing a new venture or looking to expand your current operation, a small business administration loan can be the key to unlocking your business’s future. Here are three hurdles you may encounter when applying for a loan.
Poor Credit Score
Even good people sometimes have bad credit. If your credit report indicates that you’ve had trouble repaying your debts in the past, it might be hard for you to get a new loan.
No Business Plan
Be prepared to present a business plan that shows what you will do with the loan and how you will pay it back. Otherwise, the lender might not consider you a good candidate for a loan.
Lack of Assets
Lenders need collateral, and if your business doesn’t own property or have sufficient cash flow to back your loan, they are likely to turn you down.
Applying for a small business administration loan can be intimidating, but a financial consultant can guide you through the process. Contact Financial Consulting, Inc. today to get the expert assistance you need.
Running a farm is more than just a job; it’s a way of life. With a feast-or-famine workday and crop or livestock yields that can be wildly impacted by many factors outside your control, keeping your farm cash-flow positive all year long can often be a challenge.
For these reasons farmers can have a hard time accessing cash for equipment, livestock or even next season’s seedlings. If you’re like many farmers, you may feel like you have to jump through endless hoops just to access farm financing. However, understanding the different types of farm loans and the federal programs in place can help you secure the funds you need.
Applying for small business loans can be frustrating, and according to some surveys, lenders reject roughly 66 percent of applications. Three of the most common obstacles to getting SBA 7a loans are poor credit scores, lack of business assets and no business plan, but beyond that, there are other hurdles in the process.
To improve your chances of getting your 7a small business loan application approved, you need to understand and avoid the following hurdles.
Running a small business is not an easy task, especially when your cash flow is not as positive as you would like. Did you know that 25% of all small businesses fail from poor cash flow? If your small business has cash flow issues, here are three important things to know.
