EQUI-BUSINESS Preparation is Key

Traditional loans may be difficult for new equine operations to obtain these days, but not impossible. Especially when collateral that is not specifically horses, is offered.

BY JENN WEBSTER

Enthusiasm is important when planning a business in the horse industry, but preparation is critical. Let’s face it, lenders look at the borrowers in the equine industry on a case-by-case basis. It is a challenging industry for traditional banks to provide financing to, for two main reasons. Firstly, the horse business is specialized; if the primary operator were to have something unfortunate happen, a ranch can easily go under without someone else capable of stepping up to that level of expertise. Secondly, let’s face it; people who loves horses are sometimes not so great at running a business.

Having faced both of these hurdles plus numerous more, this blog has longtime been a goal of mine to bring to fruition. For young people dreaming of creating a life and a business in the horse industry, the daunting task of following through with those targets can be met with opposition at every turn. That’s why optimism is important – but strategic planning is what will keep you alive.

In this blog we’ll discuss things like business plans, risk management, home security and the various ways obtaining your dream of being in the horse business can be done. We’ll talk to real people who have “opted in” to the lifestyle and the future by investing in equine properties – and we’ll learn how they make it work any way they can.

If you’re wondering what makes me an authority to speak on such a topic – I’m not. However, alongside my husband I have owned two successful equine properties in my lifetime. The first one was in partnership with several other people. The second one is the operation we currently own ourselves, reside upon and the place where are raising our family. We run a training, breeding and boarding operation, are stallion owners and own Western Horse Review, Canada’s largest western riding and culture magazine. We have garnered a fair amount of experience in our 20+ years together in the horse industry. (And did I mention? Till Debt Do Us Part is my favorite TV show? I know, I know, everyone thinks I’m ridiculous… but I find it fascinating. Honestly, money management is a very useful skill when it comes to being an entrepreneur).

On that note, the one thing I have learned is that there is no straight line to success in the horse industry. Banks do not always look at horses as “tangible assets.” However, if you are lucky enough to have a good lender who does see the value in your equine assets, you will have to put yourself in their shoes if you want to achieve any sort of financing.

If you’re basing your business around “high-end” horses, this is considered a specialty market. For a lender to take security in your horses, it means if you default on your payments, your lender takes the security (your horses) as collateral to sell. However, a banker cannot readily go out and find a specific buyer to purchase the horse, nor do they likely have the connections to do so. In most cases they would simply want their money back for the debt outstanding. Therefore in that case, a banker would simply seize the asset and sell it at the nearest auction mart. Which is why the horse can’t be sold easily for $25,000 or valued as such in the banker’s eyes. When you get into higher end / specialty livestock markets, it takes more to shore up the equity required, versus what the banks could do.

There is no guaranteed path to securing financing for a horse business, but if there is one critical element to gaining approval it would highlighting the “business” aspects of you and your loan application. Banks loan money as an investment, with the expectation of getting repaid with interest. To that end most loan officers are unfamiliar with the horse industry, and a comprehensive business plan that educates while establishing the profitability of the activity is critical.

When we return with our Equi-Business blog series, we’ll analyze the parts of a successful business plan. (And I’m not just blowing smoke – I can tell you it’s successful, because I’ve used the same model three times!)

Until then, here is some forward thinking I’d like to leave you with. There may be a number of programs available to help you develop your idea or product. The assistance available to you depends on the type of service or product you are developing. Most financial assistance will not cover all your costs, so remember you will need to invest some of your own money into the project as well.

Secondly there are several things a financial lender will want to consider about you. These include:

• Character: The moral obligation of the borrower to pay his or her debts;
• Capacity to Pay: The ability of the borrower to pay the debt;
• Capital: The total of equity and debt in the business (a low debt-to-asset ratio suggests financial stability);
• Collateral: Assets owned by the borrower but promised to the lender to secure the debt (the lender retains a security interest in the collateral and can foreclose in case of a default; horses as collateral might be a problem);
• Conditions: Economic conditions, location, competition, and the health of the industry; and
• Confidence: A subjective decision–is the borrower trustworthy?

‘Till we meet again!

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