Rising Interest Rates: How to Reduce Borrowing Needs

By Andi Anderson

The cost of borrowing money is becoming increasingly expensive, with agricultural loan rates now between 7.5 percent and 8.5 percent. This is double what the rate was two years ago, and while the ratcheting up of rates has slowed, there is no guarantee that interest rates will not be increased in the coming years.

Many agricultural operations are not in a financial situation to reduce their borrowing needs. However, for those that can, using available cash on hand for operating expenses can reduce costs tremendously given the current interest rate environment. This does not mean 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 operations that do not have cash on hand to replace a percentage of borrowed capital, it is advantageous to establish a goal of putting back some cash in the coming years for times such as this.

Here are some tips for reducing borrowing needs in agricultural operations:

Use available cash on hand. If possible, use available cash on hand to cover operating expenses instead of borrowing money. This will reduce interest costs and improve your financial position.

Establish a goal of putting back some cash. If you do not have cash on hand to replace a percentage of borrowed capital, set a goal of putting back some cash in the coming years. This will give you a financial cushion to fall back on if interest rates rise again.

Review your budget and identify areas to cut costs. Take a close look at your budget and identify areas where you can cut costs. This could include reducing discretionary expenses, negotiating better prices with suppliers, or finding new ways to generate revenue.

Explore alternative financing options. There are a number of alternative financing options available to agricultural producers, such as crowdfunding, peer-to-peer lending, and government grants. These options can provide access to capital without having to take on traditional debt.

By taking steps to reduce borrowing needs, agricultural operations can protect themselves from rising interest rates and improve their financial stability.

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