This website serves Farmers and Ranchers in the Kansas AgriTourism Industry.
Welcome to Kansas AgriTourism!
This website has been developed specifically for Kansas farmers and ranchers involved in AgriTourism, rural properties where the traveler has an opportunity to experience farm and country life far from the hustle of the city.
the Kansas Agriculture Marketing Division and the Travel and Tourism Division of the Department of Commerce
and with financial assistance from Frontier Farm Credit.
We invite you to explore this website to find a variety of articles and resources that will help you succeed in agritourism.
If you have any questions, please contact the Department of Commerce, Travel and Tourism Division, and ask for the Agritourism Liaison.
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When You Must Borrow Money to Grow Your Business, Part Two
As we are either starting or expanding our direct farm marketing businesses,
the inevitable dilemma occurs:
"I don't have enough capital to do it right. Should I borrow, or should I just start small?"
 Note: This is the second of a series of articles about this timely dilemma, based on a series of interviews with Dennis Lawson, who works with Kansas farms and ranches for Frontier Farm Credit. To read part one, click here.
In the first article of this series, we talked about selecting a lender with the same business strategies as yours, and about what kind of information your lender will need before considering your loan application. Now we are going to talk about some of the terminology related to applying for a loan, and how these terms affect your application.
We’ve all heard of “assets” and “liabilities”, and you probably have a pretty good idea what these terms mean. Assets are anything that has a monetary value that is owned or controlled by the operation. It does need to be clear whether the asset is listed at what it cost at the time you purchased it, or whether it is listed at market value (what it is worth today). Ask your loan officer which is preferred. (Note too that market value is not the same as the replacement value.)
There are three major types of assets, based on how soon you could convert the assets into cash on hand:
- Liquid Assets- assets where the cash equivalent can be readily recovered in a short time. Liquid assets include your cash on hand, marketable securities, investments in growing crops, feed & grain inventories, market livestock, accounts receivables, supplies on hand, and prepaid expenses.
- Intermediate term assets- assets that might take a longer period of time to convert to cash, such as breeding livestock, machinery, vehicles, notes receivables, and retirement accounts.
- Long term, or fixed assets- long term assets are not likely to be converted to cash, but instead are the fixed or cornerstone assets of your business, such as real estate, including land, buildings, and improvements.
Liabilities are seen as the opposite of assets, and reflect the money you owe to someone else. Your liabilities are your financial obligations to other claimholders.
Your current liabilities are things like credit card debt, accounts payable, operating loans, accrued interest, accrued income and property taxes, and the principal due on term loans that are due within the next year. Long-term liabilities are the extended debts, such as mortgages; and intermediate liabilities would be the liabilities in between, such as machinery loans, breeding livestock loans, vehicle loans, or student loans.
Once you have determined all of the business’s assets and liabilities, the liabilities are subtracted from the value of the assets, and this shows you and the loan officer how much of the business is the owner’s equity. Unless you have no liabilities, the assets belong partially to your claimholders, and partially to you. The value of the assets that you hold, without liability, is your equity- the owner’s equity.
The owner’s equity tells the loan officer how much of your assets are actually owned by you and could be used to repay your debt should the need arise. A low owner’s equity would reflect that your claimholders have first claim to most of your assets, while a high owner’s equity indicates that your business would be a safer risk for the loan company if they should choose to assist you with a loan.
In our future articles, we’ll look at the income statement and cash flow projections, and we’ll take a look at credit ratings, and how to improve your credit rating if necessary. We hope you’ll be looking for these articles in the months to come. If you have immediate questions or would like to know more about the services of Frontier Farm Credit, give Dennis Lawson a call, at 800-935-3081.
When You Must Borrow Money, Part One- Selecting A Lender Who Shares Your Interests
When You Must Borrow Money, Part Two- Understanding Assets and Liabilities
When You Must Borrow Money, Part Three- The Income Statement and Cash Flow Analysis
When You Must Borrow Money, Part Four-Credit Bureau Report & How to Improve Your Credit Rating
When You Must Borrow Money, Part Five-The Five Credit Factors
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