GreenStone customers Jeremiah and Carrie Mostrom with their daughter Sadie.
When considering a purchase requiring financing, a factor you’ll always consider is the loan length. Your decision will affect your financial health and business plan, so it takes some consideration. Let’s look at loan-length options, factors to consider, and the key people you need to get started.
Terms
A short-term loan is defined as a loan that lasts anywhere from 12 months to seven years, while long term is anywhere from seven to 30 years.
The length of time you have to repay the loan impacts payment amounts — long-term loans extend the repayment over more time, thereby reducing the individual payment amounts.
However, long-term loans also come with more of a risk than shorter-term loans, because there is an extended amount of time where an operation could run into trouble due to changing markets, demand, and other economic factors, which can impact repayment ability.
This is part of the reason why the interest rate increases as the term extends, thereby increasing the overall cost of the purchase to you, because you’ll be paying more in interest over a longer period of time.
Loans with terms that aren’t as long are less risky, and therefore commonly have lower interest rates for customers to take advantage of when making their financial decisions.
Ultimately, we want you to be able to afford your payment terms, which is why our financial services officers work closely with customers to determine what is the best solution for your individual situation.
Decision factors
When determining what is the best option, businesses need to first consider cash flow. Timing is an important factor when you’re deciding on the term of your loan.
For instance, if your loan payment is due and you pay it on time, but you have very little cash left, you may be left unable to pay other bills or delay other investment opportunities. If you pay late, there are other consequences. GreenStone offers flexibility for you to align repayment plans to your farm’s cyclical cash flow.
What can you do?
Make realistic decisions on your cash flow needs. Consider what other pressing expenses you have, calculate your known expenses, and try to provide a cushion for the unknowns. Our financial service officers at GreenStone are always willing to discuss individualized loan terms and interest rates that makes sense for the cash flow on your operation.
Next, determine how much risk you can take on at this point in your career, business, and personal life. There’s no right answer to how much risk you should take, but when looking at length of terms, you can evaluate the respective risks and how those fit your individual circumstances.
Generally, a long-term loan is riskier due to length, since no one knows what will happen over time. But also, customers have to make larger payments on short-term loans, since it needs to be paid back faster. Depending on your unique situation, it could be riskier to have a short-term loan if the larger payments are going to cause financial stress.
Another factor in every decision is the evaluation of where you qualify, which is another area where your financial services officer will guide you.
Depending on the size and state of your business, short-term funding may be the better choice for you. If you have an established business, then going for the long term may be most beneficial.
Key people
Your business partners, your family, your financial advisor, and your loan officer should all going to be involved in making your loan decisions. At GreenStone, we not only offer great rates, but your loan officer is also well-equipped to work with you on deciding the right loan for your needs.
Using the resources and 105 years of experience we have at our fingertips, we try to make the loan process as convenient, efficient and transparent as possible, whether you’re doing business in person or online.
And now through the end of the year, we’re also offering a special low rate on select short-term loan products. Learn more at www.greenstonefcs.com/greatrate.
Written for the Michigan Farm News Dollars and Sense Column
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