Interesting conversation with a government bank today

[Whitewing]

I'd like to buy some more equipment, cattle, and make assorted improvements in the place so I had my attorneys put me in touch with reps from a government bank today. Interesting conversation indeed.

They told me upfront that there are no loans from their bank for hog production, fish farming, crop planting, etc. Their loans are strictly cattle-related.....meat, milk, cheese production, related equipment and facilities. I didn't ask if the limited loan situation was something that had occurred only recently or was a standard policy of theirs.

I had all the records lined up for the investments I've made in the place; animals, equipment, etc as well as plenty of photographs and an outline of my plans for the next 3 years. They asked lots of questions and seemed well-informed about ranching terminology and practices. They were also familiar with my specific area and seemed impressed and pleased that we've constructed 5 significant ponds (some might call them lakes) on the place to retain some of the precious rainfall we get each winter.

Anyway, here are the terms they laid out:

1) Loan amount of up to 3,800,000 bolivares (~$700,000US at the black market exchange rate).

2) Interest rate of 9 -13%.

3) Dead period (no payments due) of 3 - 5 years.

4) 20 year term for repayment after expiration of the dead period

5) Collateral: None :shock:

Based on the size of my ranch, the cattle I'm working with now, the demonstrable investment I've made in equipment and land improvements since I started, and the equipment puchases I'd like to make, they said I'd qualify for the maximum amount, and could expect to receive the lowest interest rate and the longest dead period.

It helped that my place has been inspected and given full approval by INTI which is a government-run entity that oversees land issues and agricultural production in the country. We received INTI's highest rating for productivity.

I was also told that based on my future plans, that once the loan is approved and the improvements and infrastructure are in place, I'd qualify for a program where a separate government entity inspects the ranch and, if approved, will donate up to 500 head of imported cattle to the operation. Part of this program, they explained, would also include our working with smaller local cattlemen to improve their practices, herds, land-use, etc.

All in all, I was surprised and pleased with what I heard. We're going to push hard to try to have this one wrapped up before 15 December.

 

[allen57]

Interesting indeed.

 

[nortexsook]

Don't be surprised when Comrade Hugo comes in and takes all of "your" ranch, livestock, and equipment, for the "good of the people".

My best advise: Get out of Venezuela as soon as you can, if you can.

 

[Justin]

no collateral :shock: :shock: what the hell kind of lender does that? i don't know....if it sounds to good to be true, it probably is. sorry, i'm sure you weren't looking for advice. good luck

 

[Whitewing]

no collateral :shock: :shock: what the hell kind of lender does that? i don't know....if it sounds to good to be true, it probably is. sorry, i'm sure you weren't looking for advice. good luck

:lol: Only a government lender.

Food production here is in such a sorry state that it appears the government lenders are looking for anyone who is showing an interest in trying to improve the land and actually produce something.

As the previous poster said, Comrade Hugo may come in some day and take it all, but I'm obviously betting that's not going to be the case.

 

[Red Barn Angus]

I'd give that some very serious thought.

Do you have the land to carry that many more cattle?

That's a horrible interest rate. Is there that kind of money in cattle there?
Land improvements and equipment generate no cash flow. Granted you have to have them to handle the cattle but the cattle are the only thing generating income. Keep iron expenses as low as possible.

Unsecured isn't the big deal it sounds like. In the event of default it simply allows the lender to go after all your assets instead of just those mortgaged.

Be careful. Many times things that seem to good to be true.....are.

 

[Whitewing]

I'd give that some very serious thought.

Do you have the land to carry that many more cattle?

That's a horrible interest rate. Is there that kind of money in cattle there?
Land improvements and equipment generate no cash flow. Granted you have to have them to handle the cattle but the cattle are the only thing generating income. Keep iron expenses as low as possible.

Unsecured isn't the big deal it sounds like. In the event of default it simply allows the lender to go after all your assets instead of just those mortgaged.

Be careful. Many times things that seem to good to be true.....are.

Thank you RBA, now you're asking the good questions. :? I'll answer them as precisely as I can.

Do I have the land to carry that many cattle? Absolutely not. Not at this point, anyway. And honestly, with the nearterm plans that I've got, I don't think I'll be buying that much more land. What I've not yet been able to determine is the maximum number of animals I can handle when my irrigation systems are fully up to snuff.

That is a horrible interest rate, compared to interest rates and inflation rates in the US. For Venezuela, with its current interest and inflation rates, it's actually an excellent rate.

Equipment here actually does generate some pretty decent income. Most landowners don't own a tractor or a plow, but want to plow, plant, fertilize, fumigate something every year. I've had to turn down a lot of work because I keep my equipment busy on my place. I recently acquired a D8 and a backhoe and am amazed at the volume of work within just a few kilometers of my place. We don't even advertise, they come to us via word of mouth.

Another offer I get constantly is to bale hay for others, taking half as payment or receiving cash if I want. Right now, I don't have the equipment. Two years ago, a local rancher sold hundreds of round bales for about $100 each. I suspect he made decent money at that rate.

Most businessmen here own farms/ranches, they say not because there's big money in cattle, but because they're able to get low-interest loans against their places for use elsewhere.....money that's hard to extract via loan from other types of businesses.

Banking regulations/oversight here isn't what it is in the States, and we've seen how lax it can be there. I'm sure there's a lot of outright fraud, though I don't recall ever seeing or hearing about someone losing a place due to bank problems alone.

I've got no illusions about this deal. There will be some hitches in this package as it works its way towards completion, there always are...it's Venezuela afterall. But I'm still going to give it a shot. :wink:

 

[Faster horses]

RBA sounds like a banker...and a darn good one. :nod:

Very interesting, Whitewing. Keep us posted, and GOOD LUCK!

 

[Red Barn Angus]

I enjoyed your response WW. It sounds like you are thinking all the time. I admire your enthusiasm and your willingness to take a risk. Sounds like you have come a long way already. You have to understand my background of being a retired banker of over 30 years and being a part time rancher until my retirement from banking. I had many dreams and goals and, fortunately, have accomplished the majority of them. I suppose I am on the other side now in thinking about slowing down some and playing a little more. One of the things I enjoyed about the banking business was working with folks who had dreams and helping them accomplish those tasks. I learned an awfully lot from my customers, some good and some not as good, but still a fun and exciting time. I enjoy the planning and improving my ranching business about as much as I enjoy the cattle. I am a bit conservative by nature and a bit skeptical but that is just my background. But I have seen increasing interest rates make things very difficult for some highly leveraged persons. I'm a big believer of fixed rate loans and at the very least a cap on variable rates. I know nothing about your country and it's banking system. I wish you the very best and certainly did not mean to throw cold water on any of your ideas.....just be sure you have all your ducks in a row before you take huge risks.

 

[Whitewing]

RBA, I spent most of my adult life working in the oil business which has got to be, or at least in the past was, one of the most competitive and cyclical industries in the world. It was a constant battle between having enough manpower and equipment to cover the work coming in versus trying to figure out how I was going to make payroll.

For the plans I've got for my place, I don't need the amount of money they want to loan me, but there is something to be said for taking all that's offered here at the time it's offered. Might not get another opportunity.

Interest rates and payout terms on home and general construction loans here are such that the great majority of people can't afford to use them. When I first started spending a good bit of time here, I'd see a new home going up and, thinking like an American, figured that within 5 or 6 months it would be completed. Instead they'd work on it a few months, stop for a few months, repeat the cycle over and over until finally the family would move in.....usually well before it was actually completed. What I finally learned was taking place was that the funding for the construction was coming directly out of the owner's pocket. When the funds were available, there was construction, when not available, it stopped, in some cases for years at a time.

Anyway, from the beginning, all of the investment in my ranch has been out of my own pocket. Numerous buddies here, most of whom own a business of one type or another, have long told me to look into a government loan to improve/expand the place because the money was so easy and relatively cheap if it appeared to the bankers that the borrower was serious about what he was doing. They appear to have been right.

As I've said, there will be some hitches along the way. Bank oversight here is not what it is in the States and I'll likely be asked to pay some "fees" that we'd normally not pay in the States. It's just part of doing business here.

I need another tractor or two of greater horsepower than that which I'm working currently. Having these two extra tractors will allow me to cover my place when I need it and work off-site when everyone's clamoring for equipment to plow and plant. I'll also buy a round baler, a standard baler to produce and sell bales of bermuda, and an ensiling machine so I can ensile corn and sorghum and leave it on the spot as opposed to the obstacles and work of having to move it some distance by wagon.

I'm also interested in buying a manure spreading device as my animals generate quite a bit when they're being held and fed in corrals, which is at least half the year. Then there are the sheds, storage, and all the other facilities a ranch needs, many of which mine is currently lacking or in need of improvement.

Every year, once the summer is in full swing (March-April), there are lots of opportunities to purchase animals at attractive prices from those who've not produced enough pasture for their herd. I'll be doing that each year with funds that are left over from the loan and then selling the animals near the end of the year after they've had time on good pasture.

Any additional funds remaining will be invested in vehicles. Cars and trucks are big business here, everything from new to salvage, to rebuilding wrecked vehicles. I've got a young man working for me who is a real go-getter in this line of business. He's proven himself repeatedly and I'm gonna give him some more room to run. :wink:

 

[Texan]

Maybe things are different where you are, but borrowing money to spend on too much iron has been the downfall of a lot of ranchers.

 

[Shortgrass]

I have found that borrowing money is a something any one can pull off. The trick is to pay it back. Remember, you are buying money; if it costs too much, maybe it's overpriced. RBA knows whereof he speaks. US interest rates were up there when that would have sounded good (compared to what) and that time broke lots of people. All that glitters is not gold. Lastly, free advice is worth every penny it costs :!:

 

[Northern Rancher]

I think your pretty risk tolerant-I'd sink it into cows and grass but I hate equipment-everything but my Plammer fencing tool. Nothing like the ring of good steel on a staple turns my crank more than an idling diesel.

 

[Cal]

Will the government allow you, as a foreigner, to have a succession plan to leave your place to whomever you choose.....and not to Uncle Hugo? Be a shame to build it up if it doesn't get passed along to your chosen heirs.

 

[RISKAN HOPE FARM]

I enjoy your storey from Venezuela. I myself I don't trust Gov. or banks anymore, the Credit Union just took 2 sections of land from me and it's not fun, B.S.E. related,things looked good in 2002 . I wish you all the luck in the world if I was 40 years younger I would join you.

 

[Whitewing]

Will the government allow you, as a foreigner, to have a succession plan to leave your place to whomever you choose.....and not to Uncle Hugo? Be a shame to build it up if it doesn't get passed along to your chosen heirs.

Yes, the government will allow me to pass on my place to whomever I choose and I've currently got a legal will in place. The laws here, both civil and penal, are amazingly close to those of the United States.

Having said that, I've not decided exactly what I'll do with my place after my death. Locally, the ranch is now quite well-known as we participate in various "social projects" for the local pueblo. By social work I'm talking about things like donations of meat and pork at Christmas time for some of the poorest families with young children, small financial donations targeted to specific projects for the local schools, and the use of my front end loader and backhoe to help out when the pueblo's water line ruptures (a rather common occurrence). The engineer who works with me is originally from this particular pueblo, knows everyone, and knows which projects we should try to tackle to help them.

Earlier this year we moved about 30 dump truck loads of dirt and repaired the entrance road that leads through the mountains to my place. This is a public road but I suspect the last time the local government did any work on it was about 20 years ago or more. They just don't have the money for such projects. Anyway, there's a portion of the entrance that was concreted many years ago because it was steep, but the drainages were poorly designed, totally filled with debris, and much of the rain water would leave the concreted areas and drainages and then erode the gravel road below. We fixed the gravel road, cleaned tons of debris from the drainages, and built a nice looking trough structure out of stone and concrete to channel the water in the drainage away from the gravel road below. So far it's worked well with the limited rainfall we've had this year.

A number of locals have small farms/ranches at the base of the next mountain over and were ecstatic that we'd done this work on the road that leads to their places. Within just a week or two of the completion of the work, pueblo reps showed up taking photos and thanking us for the effort. Anyway, I enjoy doing these types of projects. They're not very big but seem to have a large return in local gratitude.

For the record the ranch is not owned by me personally. It's owned by a Venezuelan corporation. I'm the only shareholder of that corporation so I control the ranch. I used a similar structure when I opened companies in various parts of the world when I was in the oil business.

And finally, legally, I'm not considered a foreigner here. Years ago I applied for and was eventually granted citizenship. I did so because it made so many things easier for me, not the least of which was being able to be licensed to carry a firearm.

Yeah, the locals consider me a foreigner because I look different and speak with an accent, but in every other sense of the word, I'm legally a citizen of Venezuela. I recall the saying that an American can never be a Frenchman, but a Frenchman can be an America. I suspect America is one of the few countries in the world where that applies. It certainly doesn't here.

 

[Faster horses]

Sounds to me like you are a good neighbor in many ways... :tiphat:

 

[Cal]

Will the government allow you, as a foreigner, to have a succession plan to leave your place to whomever you choose.....and not to Uncle Hugo? Be a shame to build it up if it doesn't get passed along to your chosen heirs.

Yes, the government will allow me to pass on my place to whomever I choose and I've currently got a legal will in place. The laws here, both civil and penal, are amazingly close to those of the United States.

Having said that, I've not decided exactly what I'll do with my place after my death. Locally, the ranch is now quite well-known as we participate in various "social projects" for the local pueblo. By social work I'm talking about things like donations of meat and pork at Christmas time for some of the poorest families with young children, small financial donations targeted to specific projects for the local schools, and the use of my front end loader and backhoe to help out when the pueblo's water line ruptures (a rather common occurrence). The engineer who works with me is originally from this particular pueblo, knows everyone, and knows which projects we should try to tackle to help them.

Earlier this year we moved about 30 dump truck loads of dirt and repaired the entrance road that leads through the mountains to my place. This is a public road but I suspect the last time the local government did any work on it was about 20 years ago or more. They just don't have the money for such projects. Anyway, there's a portion of the entrance that was concreted many years ago because it was steep, but the drainages were poorly designed, totally filled with debris, and much of the rain water would leave the concreted areas and drainages and then erode the gravel road below. We fixed the gravel road, cleaned tons of debris from the drainages, and built a nice looking trough structure out of stone and concrete to channel the water in the drainage away from the gravel road below. So far it's worked well with the limited rainfall we've had this year.

A number of locals have small farms/ranches at the base of the next mountain over and were ecstatic that we'd done this work on the road that leads to their places. Within just a week or two of the completion of the work, pueblo reps showed up taking photos and thanking us for the effort. Anyway, I enjoy doing these types of projects. They're not very big but seem to have a large return in local gratitude.

For the record the ranch is not owned by me personally. It's owned by a Venezuelan corporation. I'm the only shareholder of that corporation so I control the ranch. I used a similar structure when I opened companies in various parts of the world when I was in the oil business.

And finally, legally, I'm not considered a foreigner here. Years ago I applied for and was eventually granted citizenship. I did so because it made so many things easier for me, not the least of which was being able to be licensed to carry a firearm.

Yeah, the locals consider me a foreigner because I look different and speak with an accent, but in every other sense of the word, I'm legally a citizen of Venezuela. I recall the saying that an American can never be a Frenchman, but a Frenchman can be an America. I suspect America is one of the few countries in the world where that applies. It certainly doesn't here.

Sounds like you're a darn good neighbor, and enjoying life as well. I, for one, truly value dependable and adequate tractors and equipment.....without going too far overboard.