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Case for Refinancing

Dr. David Kohl
Educational Opportunities: 
Home > Education & Events > October 2017 > Case for Refinancing

Hi, I'm Dr. Dave Kohl, professor emeritus, agriculture economics at Virginia Tech, Blacksburg, Virginia and welcome to another session of the Macro Clinic. Today's subject matter is making a case for refinancing. Of course, we're in what, the third going on the fourth year of the economic reset and I make it analogous to a baseball game. Innings one through three, of course influence profit and cash flow. Innings four through seven, we burn through working capital and of course innings seven through nine, we're starting to burn through what we call core equity or excess equity in land. Many of you are going to seek refinancing and of course that occurs oftentimes in the down part of the cycle. Well, how can you build a better case?

Well, first of all, you need to have a one page plan and in that one page plan, you need to have your short term and your long term goals. Short term being one year, longer term being five years, and those goals need to be smart, specific, measurable, attainable, realistic, and timely. Second, make sure that you have accurate financial information. Let's start with the balance sheet. Make sure you use conservative values on your assets. Make sure that you document all your liabilities including accounts payable, capital leases, and also over on the personal balance sheet, make sure you document all credit card debt. Accuracy is going to be very, very important.

The third element is to map out a projected cash flow and one of the things that cash flow needs is scenario analysis. In other words, changes in price, cost, and now with possibility increase in interest rates, interest rate sensitivity is going to be very important. The fourth cornerstone in making a case for refinancing, get prepared to work with your lender side by side, and what you can do is take that cash flow and then monitor it with actual results. If you don't meet monthly, meet quarterly and see what the actuals are compared to the projections and then determine is it a macroeconomic event or a macro factor, like weather impacting it or is it something management is doing both on the negative side, but also on the positive side as well.

If you can come in with a one page plan, mapping out some of these factors, your chance for refinancing now and in the future will increase dramatically. Well, we'll see in the Macro Clinic the next time.

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