The other day a producer asked me an interesting question. With all the emphasis on working capital and cash lately, how much should you keep on hand? First, we must ask some specific questions. In this case, the farmer indicated that he would need a $1 million operating line of credit to purchase inputs for his 1,400-acre farm. Next, discussion focused on the lender’s advance rate. In this case the lender would loan up to 70% of the value of the producer’s assets on inputs for the operation. The lender requires the borrower to come up with 30% to margin the loan....
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