– Dr. Andrew Griffith, Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee
The cost of borrowing money is becoming increasingly expensive in today’s environment. Many agricultural loan rates are between 7.5 percent and 8.5 percent, which is double what the rate was two years ago. The ratcheting up of rates has slowed tremendously, but that does not mean interest rates will not be increased in the coming years.
There are many operations that are not in a financial situation to reduce borrowing needs. However, there are some operations that could use some capital on hand for operating money and reduce borrowed capital. The use of available cash could reduce costs tremendously given the current interest rate environment. This statement is not to insinuate using all cash on hand in place of borrowing money, but rather to use a portion of the available capital to replace some borrowing.
For those who do not have cash on hand to replace a percentage of borrowed capital, it would be advantageous to establish a goal of putting back some cash in the coming years for times such as this.