Convincing The Bank To Lend Me $2,000,000.00

2022 in the farming world was crazy it's clear this year's crops are better than last year's we have the best crops certainly in the last 10 years record soybean yields prices of corn and soybean have risen to near record level and that's the highest they've been in nearly eight years there's just one problem U.S farmers are likely to plant the most expensive corn cropping history mid-surgent input costs we've seen bottom line costs up to Triple the real question is what does this actually mean for Farmers because if we don't have Farmers we don't eat we don't eat I gonna have a really busy month of digging Graves you know if we got a bunch of farmers together to not produce any crops and then a bunch of people I just figured out a new business plan I have two main responsibilities on our farm I am the operations guy so anything new that we would like to try the future stuff of the farm how are we going to get there who are we going to need to get there what are we going to need to get there those are all responsibilities that I take upon my shoulders I'm also the financial guy so any dollar that passes through the farm comes through me if we bought a seed I know about it if we bought new tires for the car I know about it if we broke something and we didn't tell me about it I find out about it because I'm the money guy tomorrow I have a meeting with les hello my name is Les I'm A lender for gin B Bank in other words less is my money Gap here's me needing some input money for seed fertilizer and chemicals the problem is I don't have any money so I go to the bank and I say hey I need a thousand dollars for seed fertilizer and chemicals can I borrow that they say that's fine but we're gonna set you up on a line of credit account and it's going to cost you eight and a half percent interest so I end up giving the bank an old I owe you and they give me the thousand dollars I plant my crop and it turns into grain and so now I have one thousand two hundred dollars with strain now I have some cold Hard Cash hey Cole remember that IOU you gave us okay here's your thousand dollars back and I'd like to have that thousand dollars but at least I still have two hundred dollars um interest please so I ended up paying the bank back the original thousand dollars plus I paid them their eight and a half percent interest which was 85 so then now I'm left over with 115 dollars in profit so in order for me to get to that asking point I need to come together with a plan to give to less we call these cash flow predictions so I'm gonna sit down right now and I'm going to make my 2023 cash flow predictions so that way we have something to present to less and hopefully he likes what he sees because I'm not foreign [Music] to the 2023 new Financial projections I have some historical data over the last four years from our farm so in 2019 for seed fertilizer and chemicals it costs 210 dollars per acre 2020 202 dollars an acre 2021 357 an acre 2022 546 dollars an acre during that same time period crop insurance nearly doubled going from 12 an acre to 13 to 17 to 22 an acre diesel fuel gasoline and LP went from 27.24 25 59 an acre repairs and supplies went from 53 to 67 to 90. to 76 we got a discount right there and hiring trucks to go from our grain bins to the processor went from 23 an acre to 16 an acre to twenty dollars an acre to thirty six dollars and remember that money that we have to give to less since he gave us money to use well that went from 18 to 24 to 33 to 31. so from 2019 to 2022 nearly every single aspect of farming has nearly doubled if not more than double and that's excluding payroll taxes labor land rent real estate taxes property insurance utilities professional fees dues and miscellaneous items AKA food from Casey's and those can easily range to an extra four to six hundred dollars per acre so over the last two years that's what's happened things have just keep going up and up and up and up so here we are today let's just called he's ready to have our meeting we're going to present our 2023 projections of what stuff is going to be and hopefully at the end of the meeting less will lend us two million dollars I honestly don't know how it's going to turn out projections aren't looking very good you know Les could have picked a warmer day to come we've got warm Waters tried to warm them all the way down you based off my current cash flow model I'm sure we're gonna need a little bit over two million dollars if our projections show that that is feasible is that something you can do for us oh yes absolutely and then if something goes wrong with that whole plan at that time then we'd have to figure out what to do with that remaining debt if you can't pay it back at the end of the crop season if you're short you have equity in other assets such as land and Machinery all of our loans go into a risk rating scale and so the higher risk you are you might pay a little more interest than the guy that you know rates better on that scale so once we get done here today we'll have a pretty good direction right from your computer right now so it's a lot of feedback yep okay yeah I think you might be a little optimistic going into this one laughs when we visit with les I'm going to show how impactful interest can be so the next year rolls around I still need my thousand dollars for seed fertilizer and chemicals but the good news is I have 115 dollars so now I only need to ask the bank for 885 and eight and a half percent interest rate so I plant my crop I raise it into grain again and then now we have our twelve hundred dollars back sitting in the bend but this time instead of paying eight and a half interest on a thousand dollars we're only paying eight and a half percent interest on 885 dollars so instead of costing 85 this is gonna cost seventy five dollars so I end up selling our grain and collecting our twelve hundred dollars right off the top we're gonna take back our 115 dollars that we originally invested then we're gonna pay the bank back the principal of 885 so now we're left with our 200 again but this time since we borrowed 885 dollars instead of a thousand dollars we only have to pay them seventy five dollars in interest instead of 85 dollars in interest that means this year we could to keep an extra ten dollars so last year we made 115 now we've made 125 dollars since we paid ten dollars Less in interest so next year rolls around we need our thousand dollars for our seed fertilizer and chemicals we have 240 of our own cash now so now we only need to borrow 760 from the bank at eight and a half percent so then this year we'd owe the bank only 65 dollars and we'd keep 135 and then we just keep investing that back into the farm and then year over year we just keep paying less and less in interest as we have to borrow less and less money then we get to take more and more home but this example of borrowing a hundred percent of our working capital it will take us eight years of reinvesting all of our net profits back into the operation before we're finally operating on 100 percent our money during that process we will spend 359 dollars on interest and then we'll have a net return of 1241 so 22 and a half percent of our income went back to the bank in interest where things start to get fun is where we don't have to borrow any money anymore so now we don't need the bank I have my own thousand dollars I plan to crop I raise it turns into grain so now we have our 1200 sitting in the bin it's gonna cost a thousand dollars next year to plant our crop so we're just gonna put that money back into our account because we know we needed to plant a crop but now we're left with the two hundred dollars we don't have to pay interest to anybody now I'm starting to look at some fields and I'm like man we're lacking and some fertility on this Farm we need some field tile in that farm that's really impacting our yields so we invest this 200 into our operation and we make a return of eight and a half percent so now the next year rolls around we turn our 200 into 217 dollars we reinvest this into more field tile and more fertility at eight and a half percent rate of return and the next year we have 235 dollars and then reinvest that at an eight and a half percent rate of return and now we have 255 dollars then 276 dollars 300 325 353 dollars this will just continue year after year after year of reinvesting that it'll just keep getting larger and larger and larger this growing year over year effect is what they call compound interest compound interest is extremely powerful for example when we did not have to use the bank after eight years we would have had two thousand one hundred and sixty one dollars well during that same time period when we were borrowing money from the bank we would have 1241 so the difference between paying eight and a half percent interest to the bank versus paying ourself a a half percent interest every year is a 74 difference in money after the end of eight years so what's that do over 50 years so with the first example we started with absolutely no money and then all the profit we made we reinvested back into we were borrowing less from the bank that took eight years before we were financing everything on our own first example where we started just financing on our own right from the get-go after 50 years there is a fifty four thousand dollar difference between how much money you would have well that just shows the power of we want to get self-financing as soon as we possibly can because the returns are astronomical right now our farm is in the situation where we borrow money from the bank we have been taking our profits that we've been making over the years and we've been continually trying to whittle this number down as small as we can so we're still on that step what I'm trying to be very careful with is when we do borrow this money and the money that we have left over I want to be spending this money to be going back into the operation to be providing a return I don't want to be buying Ferraris and Lamborghinis and lake houses and stuff with this money because otherwise that money is gone on and then we're back in the same boat where we just have the bank lending us the money and we're not actually getting ahead anyways the Lamborghinis in the lake houses that's a future down the road thing once we've established money coming in providing a good return for us getting us out of the line of credit from the bank then we're in a lot stronger financial position then maybe at that time we can afford to do something like that but while we're still borrowing money from the bank to me spending the money that we make as profit and just blowing it on random stuff probably not the most wise decision we're doing an over simplistic generalization of what we're trying to do because our inputs are not always going to be a thousand dollars sometimes they're gonna be eleven hundred dollars twelve hundred dollars fifteen hundred dollars seven hundred dollars we don't know same thing with the money that we get in coming from grain it's not always twelve hundred dollars could be eleven hundred dollars could be a thousand dollars could be five hundred dollars we don't know so this is where our cash flow prediction models and the less come into play all right Cole a second time go but we're all laughing right now but the cash flow numbers the projections are not looking promising we're showing a negative across the farm on virtually every level so I guess my question is are we eligible for this loan absolutely what happens if we hit these projected numbers like a spot on the head which is basically showing us losing like multiple hundreds of thousands of dollars that's actually just part of farming that's gonna happen and so farmers have to live a somewhat conservative lifestyle of course comes to worse we're not going to get you knocking on the door in an FBI suit are we oh probably not I don't own it I don't own an FBI suit so you're in luck Wes's projections came in worse than I had initially anticipated because I was using a 6.25 corn price in a 14.50 soybean price well unless used a 5.40 corn price and then 11.70 soybean price using lessons projection we'd have a total revenue of one million 719 thousand dollars my projections we'd have a total revenue of two million forty seven thousand dollars and that's like a 300 000 difference so based off our projections if we use less as numbers and we have an average yielding year we're going to lose 430 507.38 430 000 loss is not good now mind you we are using conservative numbers but the bank just wants to make sure okay if things go bad up to the point where crop insurance is going to kick into play then we just want to make sure we're getting our money back so that's really all the bank cares about they just want to make sure that they're getting their money and then we're just kind of on our own after that but the 430 000 loss is not ideal that's really bad for the farm but it would not bankrupt the farm and here's why over the years we've been able to get the farm into a position where we borrow half of our inputs from the bank and then we're able to self-finance the other half so in the case of the 430 000 we'll just call that 430 if we lost that basically the bank would just say hey don't worry about it we'll just lend you the money next year and then we go back into that eight and a half percent cycle and we kind of start back over so handing the bank back over this money would not really be ideal it would at least keep us where hey our head's still above water we don't actually still owe the bank anything else so we're still staying in business we just don't have the working capital that we used to we rely heavier on debt the more debt we have the more risk we are as a farm and then if you have another one of these 430 000 loss years then that's when you start having to sell stuff and then if you can't sell enough stuff then that's when you sell everything and you're done we're gonna do our best to keep it like that and we're aiming to do that we don't want to deal with the bank anymore we just want to we want to be our own bank all in all if prices stay up high and we have exceptional yields we can have a good year on the farm and that is ultimately what we want but at this point we just don't know and that is just the risk of farming this has happened every year in farming since the beginning of farming why do farmers want to keep doing this if they know there's years where they can be losing money doing it they enjoy the lifestyle they're Their Own Boss they get to work outside they can use equipment there's not too many people in this world that control as many things as Farmers control managing land taking care of the land saving it for the next Generation it's not always super glorious and awesome there are tough years and there's years where you lose money and there's years that are not fun but what are we gonna do not eat we've almost been in business 90 years now so we've been able to make it through a lot of hard hard times we're just going to keep plugging forward if you enjoyed the video and you learned something I'd appreciate it if you check out the link in the description cornstar gear we got that's all I got for today thanks for watching we'll see in the next one

Channel: Cole The Cornstar

Views: 222,834

Keywords: farming, agriculture, quads, tractors, farmers, country boy, heavy equipment, mechanic, renovation, restoration, construction, engineers, fabrication, home projects, family farm, dogs, Massy Ferguson, corn, John Deere, case ih, abandoned property, farming simulator, fs22, food, home improvement, tools, entrepreneurs, transformation, hoarder, satisfying, junkyard, organized, farm videos for kids, kid videos, inspirational videos, for kids, how much do farmers make?, business, feeding the world

Id: Hfg-sIojqfw

Length: 14min 50sec (890 seconds)

Published: Sat Mar 04 2023