USDA looks at debt-to-asset ratios as an indicator of how financially solvent farms are. If a farm business has a debt-to-asset ratio higher than 0.40, USDA considers it “highly leveraged.”
The percentage of highly leveraged farms has been on the rise since 2012.
AgDay has the story.
In 2016, highly leveraged crop farms are expected to reach their highest levels since 2002. USDA notes that because lending institutions use debt-to-asset ratios as one of its criteria to predict the chance of defaulting on a loan, it can negatively affect a farm’s ability to secure a loan.
According to USDA’s 2014 Agricultural Resource Management Survey, farm businesses that have at least $350,000 in annual sales account for more than 90% of U.S. farming production, and hold 71% of all farm assets and 80% of all farm debt. Row-crop farms are more likely than livestock operations to be highly leveraged.
Curious about the behaviors that leave lenders worried a farm operation is heading in the wrong direction? Read “Five Red Flags That Spook Your Lender.”