Make extra loan repayments whenever you can. Sometimes you may be able to make double or triple regular repayments for a few good years.
To do that, first when signing up for a loan, make sure you have the ability to make early repayments without penalty.
In a low interest environment it is not that you will save a heap of interest as would be the case when interest rates are high, but that you will clear your debt and have clear title to your farm sooner. That dramatically reduces the risk of foreclosure and you losing the farm. Having your own title deeds safely in a deed box at home is a good thing.
Bank charges on loans also eat up farm profits just as interest does. But nothing eats up farm profits like the worry of dealing with a defaulting loan with the bank constantly on your back.
With interest rates around 5% or less, it is good to remember that not so long ago they rose to 24%.
Once debt is cleared, it is possible to concentrate on farming and enjoying life. As long as you have debt there is potential for trouble when seasons go bad or prices do the same. It was Solomon who wrote “The borrower becomes the lender’s slave”. In my GBAC Advisory consultancy I have seen many farmers working day and night to make more profit for the bank than for themselves.
Coming up are four more hints on turning farm debt into farm profit and they are the most spectacular of all.