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From bad to worse, to better again

How one farm couple and their financial advisor restructured significant debt to dig them out of dire financial circumstances

"It’s hard for people to admit they have a problem,” says Art Lange. Then the day comes when they basically have no choice.

Art Lange, left, walks the field edge and says that in an ideal world, every farm would make money every year and every farm manager would always make the best financial decisions. But it’s not a perfect world. Well-kept financial records help. So do staying on top of production costs and following a budget, but even the best laid plans can go off the rails.

Lange, an Alberta-based farm business consultant, has worked with many different types of farms over a career spanning 16 years and he’s helped many farmers deal with their financial difficulties. Recently, he began working with a couple whose debt had reached a point where they worried whether their farm, in the family since the 1950s, would survive.

The couple have shared their story but have asked that their names not be published, and because such stories are so under-reported in Canada, Country Guide has bent its internal rules and agreed.

The couple have a small beef cow/calf operation of about 70 cows and they’ve been in business since the 1990s after taking over from the previous generation. They own two quarters of land and rent four others.

They harvest hay for winter cattle feed but there are no grain crops.

The 2000s were good years that generated an infusion of off-farm gravel sales to the oil industry from one of their quarters, and the extra income spurred a decision in 2006 to build a new house and shop.

What they didn’t see coming, however, was that the gravel sales would stop and they’d lose that extra revenue when the slowdown hit the oil sector in 2015.

The couple tried to renegotiate their loan agreement with their major lender, but the lender refused.

Later that same year, the couple approached Lange for advice.

“It was just a passing inquiry with some general questions,” Lange recalls. “We never got into detail but I think they realized at that time there was financial trouble on the horizon. They knew that trying to make these significant payments on the loan wasn’t going to be possible.”

Time passed and Lange had no further contact with the farm until this spring, when a lawyer and friend of the family, concerned about their financial predicament, contacted him to see if he was still providing financial analysis and writing business plans for farmers.

Management options

By this time the couple were in a full-blown crisis. They were in arrears with their major lender and the lender was threatening to foreclose if they did not retire the total amount of their loan. They had also accumulated other short-term loans with equity lenders, and their debt load, which Country Guide has also agreed not to disclose, had become overwhelming.

Their situation turned dire, and they signed on with Lange immediately to see what help he could provide.

That began a process of exploring the various options he lays out for all farms facing financial difficulties.

Signs of trouble include talking about your lender like the bad guy, and putting all your faith in the hope that “something” will save you. photo: Anthony Houle Photography

One was to sell assets such as land or other capital investments. However, the couple had already sold some land — two quarters — which they were renting back. Selling more land wasn’t viable for the farm.

They also looked at sales of their farm equipment but their vehicles couldn’t be expected to generate much income since they were mainly older and of lower market value.

Selling cows was off the table, too; their herd was the basis of their farm income.

A second option they talked over was trying to earn more off-farm income. That didn’t look feasible either. The farm needed both of them full-time, plus the couple was getting older, too.

With Lange, they also explored the possibility of diversifying the farm operation and adding other enterprises, but they also steered away from this for the same reasons.

The couple do have children, including a son who is to inherit the farm one day, but the next generation isn’t directly involved in the day-to-day operations of the farm at present.

Another option Lange laid out was to increase farm income by expansion of the existing operation. This was a viable option for them, he said, noting that they’ve chosen to expand their herd. It won’t be a quick fix because they select their own heifers for herd replacements, but the couple did decide they would increase by about 15 heifers a year to get to 100 animals, which they felt their pastures and hay production would support.

For additional income, they also began custom grazing cows for their bull supplier this year.


The other option Lange discussed in detail was to begin a major financial restructuring, and to amortize their existing debt over a longer period of time to reduce its demand on their cash flow. They chose that route, but it has by no means been a simple process.

Their difficulties stemmed from needing to find a new lender, because their existing lender would not agree to work with them.

With missed payments and deteriorated credit history on your record, Lange says, trying to find a new lender is, in a word, challenging.

Lange prepared a detailed business plan for the couple and began to shop it around. “I circulated it to several lenders before I found one that would take on this risk,” he says. “It was the last conventional lender that finally agreed to the restructuring plan I proposed. If that institution would not have taken on the risk, we would have had to go to an equity lender, which means eight to 12 per cent interest and a two to three percent application fee.”

With a new lender agreeing to assume all their debts and to consolidate them into one long-term loan the family is now breathing a huge sigh of relief.

“A tremendous mental weight has been lifted off their shoulders,” says Lange.

“They have a good relationship with their new lender and they are optimistically moving ahead. They also have a good hay crop this year so they should have more than adequate winter feed. So, all in all, things are looking very good for them.”

Lange says he was glad to have seen them through this. However, it’s just one version of the difficulties that can arise on any farm.

From unseen events to poor decision-making, he’s seen it all, Lange says. “I’ve dealt with divorce situations, accident and injury, and just plain bad business management decisions, or more precisely, non-decisions.”

The latter usually means significant purchases were made without examining the full implications beforehand. That has at times included costly equipment purchases, he adds. “Some farmers like their iron far too much.”

This is the cautionary tale the couple agreed, with anonymity, to share.

Your farm outlook?

What are the signs your own farm might be at risk for financial problems?

The most common signal Lange sees is being unable to meet cash-flow obligations, which usually goes with having to borrow more and more money via various means or running up accounts payable.

Not paying bills on time is another red flag, of course, and so is that call from the lender asking to come in for a talk. You’re definitely headed for trouble if you’re not returning those calls, Lange says.

The other signs include a lack of open family discussions about finances, or an outright refusal to address them. That can stem from a growing sense of helplessness, plus a lack of knowledge of what options may actually be available and how to access and use them.

Lange says other farm families approaching this predicament need to take the first critical step, which is to talk to their major creditors to explain whatever situation is developing, and to ask for time to pay or to restructure.

Lenders realize that borrowers will sometimes have problems, Lange says. “There’s going to be financial difficulty as long as there’s people requiring financing,” he says. “What they want to know is how are you going to deal with it, and how are you going to work your way through it and hopefully get out of it.”

That’s where keeping a good ongoing relationship with your lender is so important, Lange adds. It’s folly to view your lender in an adversarial way. Instead, what’s important is to approach them with a game plan, having thought through what you need to talk about.

“Having some sort of structure written down… a systematic presentation with numbers behind it, and a few alternative scenarios, is much more impressive than basically going in and having some ideas on the the top of your head, or some numbers scratched down,” Lange says.

“Then the banker or lender will know you’ve thought about it, and looked at options.”

What you don’t want, of course, is to fall into arrears with a loan payment. You’ll risk becoming toxic, rapidly dismissed by large lenders.

It’s also essential to be frank with yourself, Lange says. It’s easy to fall into a kind of wishful attitude, thinking a solution will present itself, and “I’ll make it happen somehow.”

Instead, finances need work.

“A non-decision would see you carrying on the existing mode of operation and having the idea in your head it will be better next year, or that something will come long and the situation will improve,” he says.

Even after all his years working with people who get into financial difficulties, he wishes he had a better grasp of the psychology behind this. But he also has more admiration for those who do address their situations head on, and who do work their way toward a solution.

“It is hard for people to admit they have a problem,” he says. “Aren’t we all like that?”

About the author

Associate editor

Lorraine Stevenson

Lorraine Stevenson is associate editor with Country Guide. She has also covered agriculture and rural issues since 1995 as a reporter with the Manitoba Co-operator and Farmers’ Independent Weekly.

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