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Steve Kinsella

Steve Kinsella, attorney, Fredrikson & Byron: Financing farming during hard times

MINNEAPOLIS – The ag industry has always experienced business cycles of boom and bust. The recent increases in the number of agricultural-related bankruptcy filings and foreclosures suggest that we’re in or are entering a new bust cycle in production agriculture.  

While ag producers are often the first to suffer during a bust cycle, other industries also feel the impact, including banking, real estate, equipment financing and food and livestock production.  

For a while, ag producers were able to manage the current tough financial conditions because lenders remained willing to keep providing yearly working capital loans. These loans let producers cover the previous year’s losses and buy the necessary supplies for the coming year.  But the increase in bankruptcy filings and foreclosures suggests that due to current market conditions, lenders may be less willing to keep making those working capital loans.

Based on my experience advising a wide variety of parties in the ag industry, including both ag producers and lenders, many ag producers wait too long before they realize their financial situation is a dire one.  And due to the collateralization of most loans, if a lender declines to renew a yearly operating loan, many producers lack not only the cash to buy necessary inputs but also the ability to sell assets to generate sufficient cash.  

Step 1: Create a complete financial assessment

One of the most important first steps when facing a tough economic situation is to conduct an honest and complete assessment of the financial situation, consider all possible options and choose a path to move forward before it’s too late.  

A necessary part of this first step is generating accurate and concise financial statements to understand the current financial condition, including a complete list of assets with accurate valuation estimates, a complete list of liabilities and an honest budget or cash flow projection.  Once those accurate financial statements have been generated and are available, it is much easier to analyze possible options to determine the proper course of action.

Step 2: Keep negotiating

Initially, those in distress should continue negotiating with current lenders to determine if the lenders will continue to lend (and under what conditions), or if the lenders will agree to some type of repayment plan.  

These negotiations may result in a number of different workout arrangements. In some cases, the parties may agree to a modified payment plan, with the lenders deferring some payments to let the producer develop a cash flow that can be used to make payments over time.  

In other cases, the parties may agree on a sale process to sell certain assets (such as unused real estate or equipment) to generate cash to make payments on debts and reduce unnecessary expenses.  

The lenders may agree to forbear from collecting on debts while the producer seeks alternative financing, usually with the producer agreeing to sell assets if no alternative financing materializes by a certain date.  

In combination with any of these options, lenders may be willing to grant a short-term operating loan if some type of plan is in place.

Step 3: As a last resort, weigh bankruptcy’s pros and cons

Bankruptcy is usually the last resort, but it is an option.

If negotiations with the lenders break down, or the lenders are simply not interested in negotiating, another option to consider is a bankruptcy filing. In a bankruptcy case, an automatic stay immediately stops all collection efforts, litigation and any other actions that would affect the property of the estate. 

A bankruptcy case lets a producer keep operating his or her business while attempting to reorganize through a plan.  

Depending on the type of bankruptcy case, the producer’s proposed plan will need to satisfy certain requirements, and creditors are granted protections that may make confirmation of the plan difficult.  

While the cost of a bankruptcy case can be somewhat mitigated by effective preparation before filing, bankruptcy cases normally are expensive due to administrative costs. Plus, once a bankruptcy case is filed, it is difficult to get out of the case.

So, filing a case is a huge decision, and one that should normally be a last resort in order to protect the business.

In this tough economic climate, more and more ag producers will be faced with difficult decisions on how to continue to operate. And the decisions made by ag producers will affect not only the ag industry, but also related industries throughout the community.  

Thus, understanding ag producers’ options is important for not only ag producers, but also all others who may be affected by the ag producer’s choice of action.       

Steve Kinsella


Fredrikson & Byron


Kinsella helps businesses, commercial lenders and individuals in the areas of corporate restructuring, creditors’ remedies, bankruptcy, commercial litigation and related matters. He can be reached at