Why It Is Important to Avoid Unnecessary Debt to Have a Successful Farm

At first glance, this rule seems like common sense. You want to avoid debt in any business scenario. However, debt is especially detrimental for a farm. In the past half-century, debt has destroyed more farms than pestilence, drought, and plague combined.

Debt is attractive because it allows a person to borrow money to achieve their goals now and then pay for them later. While it is true that debt might allow a person to buy beef cattle for farming today or purchase a new tractor today, not being able to repay the borrowed money can lead to nightmares in the future.

Experience shows that farming can be full of uncertainties. You can plan everything just right, but nature might not cooperate with your plans. Or circumstances outside of your control could increase or decrease the value of the crop that you are planting. In a business that is full of uncertainties, adding monthly payments is like putting an unnecessary shackle around your ankles.

Of course, this does not mean that there is no circumstance where a farmer will take on debt. You may need to get beef cattle for farming or livestock in order to get your farm moving forward. There are many times when leveraging assets is a good idea. The more experience you gain, the better you will be able to leverage assets and create a stable cash flow in your business.

With time, you will see when it is good to take on debt and when it is not. However, until you get that experience, it is wise to avoid debt as a rule of thumb.