It takes a lot of time to arrange a loan, particularly if land is being used as security.
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I was chatting to some young farmers last week. All were planning to expand over the coming years and all were going to take on some debt.
Their attitude was to get a loan over as short a period as possible and have it paid off quickly. This is a trap many farmers fall into when taking out a loan.
Yes, over the lifetime of a loan you will pay back more interest if the loan is repaid over a longer period.
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But, more importantly, the repayments are smaller so you have more cash available to service other commitments.
Of course, it depends on the size of the loan relative to the size of the business but for big investments, longer loans of 15 years or more are preferential.
You can always elect to pay it back faster if you want to, but at least when milk prices are poor you won’t be under as much pressure.
The other thing to remember is that it takes a lot of time to arrange a loan, particularly if land is being used as security. In most cases, it takes a few months for all the legal issues to be sorted out.
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I was chatting to some young farmers last week. All were planning to expand over the coming years and all were going to take on some debt.
Their attitude was to get a loan over as short a period as possible and have it paid off quickly. This is a trap many farmers fall into when taking out a loan.
Yes, over the lifetime of a loan you will pay back more interest if the loan is repaid over a longer period.
But, more importantly, the repayments are smaller so you have more cash available to service other commitments.
Of course, it depends on the size of the loan relative to the size of the business but for big investments, longer loans of 15 years or more are preferential.
You can always elect to pay it back faster if you want to, but at least when milk prices are poor you won’t be under as much pressure.
The other thing to remember is that it takes a lot of time to arrange a loan, particularly if land is being used as security. In most cases, it takes a few months for all the legal issues to be sorted out.
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