|
North Central Illinois | If you are losing money operating you cannot show a profit no matter what your assets are. The value of your land and other assets goes to net worth and borrowing power. It really has nothing to do with profitability. Bankers DO look more at cash flow and profitability than assets when making a land loan. The assets become important because they look at those to see if there is enough equity in land he already owns to cover the cost of the new land should things turn bad. In other words if the you know what hits the fan can we sell the ground this guy bought plus some more of his ground to cover the loan? In most cases the buyer probably owns enough other land to cover the loan even if the value of land drops 50%. I'm telling you that these banks are not loaning money to just any by the seat of their pants operation. They guys that are buying the land are properly capitalized and collateralized. Banks were a lot less picky about who they loaned money to and how they did it back in the 70's and 80's. In the agricultural sector that is. If other sectors of banking would have looked at what happened back then we wouldn't of had the mortage crisis of today. I enjoy your thoughts on this. Take care. | |
|
Inflated Balance Sheets
