Borrowing Trouble

The banking world has created another mess the public is going to have to pay for through higher interest rates. For growers and everyone else, subprime loan scandal means it will be more expensive and more difficult to borrow money. Likewise, more consumers are facing foreclosures, losing equity in their homes and stretching to make ends meet for the bare necessities. How inclined are they going to be to buy plants when they can barely pay for food and gasoline?

Debt wise, growers tend to fall into three categories:

• Older operations that are debt free

• Expanding operations that borrowed money to increase size and invest in technology

• Others are very leveraged just to pay for operating costs to run the business.

Warning to growers with considerable debt: If you’re borrowing short-term money, you’re going to pay more for it. And those who have credit lines with variable rates are finding risk factors that were acceptable two years ago are no longer acceptable. Interest rates are too high. 

Bad News

The latest banking industry scandals surround subprime loans, the bankruptcies of Bear Stearns’ two subprime funds, the foreclosure on home loans because people cannot afford the increased interest rates and the loss of the home’s value to below what is owed on the property. Over $200 billion in subprime adjustable rate mortgages will reset upwards from low teaser rates with monthly payments increasing by 40 to 50 percent. Since the average subprime borrowers already spend 40 percent of their after-tax income on housing, they cannot afford the resets. Also the value of single-family homes will fall about 20 percent from the 2005 realty boom.

Borrowers need to cover the losses and find money to cover the increase from subprime to conventional loans. Banks are tightening the amount of money they will loan. You must have a very good credit rating and also have a higher share of equity in your home or business if you are to secure a loan.

A. Gary Shilling in his article, "The Bear Bust," which appeared in the August 13, 2007 issue of Forbes, predicts that, perhaps by the end of the year, American consumers will retrench and precipitate a big recession as the home equity that supported their spending evaporates.

Banks use teaser loan rates to attract money in their advertising. An example is student loans that you don’t have to pay until six months after you complete college, but when you start paying, you have to pay that actual principal and all the interest for four years and six months tacked on to the principal. Unfortunately, they don’t advertise this fact. Some say practices like this are deceitful. Some say they are criminal. But, if you read the fine print (very fine print), they think they have themselves covered. 

Banking On A Death Wish

How low can Wall Street and the banks go? They are now selling "death bonds," trying to profit from mortality. Death bonds may be the most macabre investment scheme ever devised by Wall Street. Even while the subprime mortgage was crashing, many of the biggest financial players had a conference in New York to talk about the next exotic investment.

More than 600 participants descended on New York for a three-day meeting. The group included Bear Stearns (the firm that just had two hedge funds go bankrupt in the last three months), Deutsche Bank, Lehman Brothers, Merrill Lynch, UBS, Wachovia, Wells Fargo and others. They were all learning how to profit from people dying.

How does it work? Banks and lenders offer to pay the insurance premiums for people who can’t afford to keep their life insurance, if they agree to sell their policies to the investors. The investors then take a percentage of the insurance benefits when the person dies. For the investors, the quicker the death, the more profit they make.

Most transactions are made by firms called settlement providers that sell the policies to hedge funds for a fee. These hedge funds offer investors huge profits if the schemes work out, but when they go bust, the hedge funds and their investors go broke!

Since the hedge funds, brokers and banks have lost a lot of money on subprime loans – some of them going bankrupt – they now need a new source of great profit. So why not make it on those who are close to death? How ghoulish can Wall Street, banks and brokers become?

If you want to see just how low the financial industry can go, read "Profiting from Mortality" by Matthew Goldstein in the July 30, 2007 issue of Business Week. 

Bait And Switch

After this past month, my opinion of people on Wall Street – the brokers, the hedge funds, the investors and the bond raters – is that they are somewhere between deceitful and criminal. The federal government should closely watch the schemes that the financial community develops.

The subprime interest rates, the college loans that you don’t have to pay for until you graduate, and now the death bonds are all sold by telling only part of the details involved. All the rest is written in very small print, usually in the last few paragraphs of the documents. They are usually sold to you by an individual who comes to your home after dinner asking you to sign anywhere from five to 60 pages of documents. You never get the whole story until you get your first statement from the bank that bought the loan from the broker you dealt with.

Remember, if the deal is too good to be true, it probably isn’t true!

A home loan I was supposed to get for 2.5 percent for 60 months was true, but they forgot to tell me that the real interest rate was 8.34 percent. If I paid only 2.5 percent, I would owe 20 percent more at the end of five years than I had borrowed originally because the additional interest was tacked on at the end. Deceitful? Yes! Criminal? Maybe.

The people you trust to help you make money and keep it may be the same people who are taking it from you. The bottom line: make sure you have a great lawyer, a great accountant and a great banker. Don’t look for the cheapest deal. Look for the best deal.

The best deal is one where you get the people who take care of your money and your business, as well as you, so you can take care of your plants. In all my experiences, the best financial people I’ve met are the ones who live in the same town or area and truly have a concern for you and your company. They are an important part of your family and business life.

Make sure you have the right financial and legal people, and beware of the something-for-nothing hustlers. Again, experience is the best teacher, but the tuition is too high!

Leave a Reply

More From Finance/Operations...
Basil_Persian-AAS2015_620x329

July 31, 2015

All-America Selections Promotes Garden-Fresh Cooking

All-America Selections (AAS) has stepped forward with another first when promoting AAS Winners, this time in the form of cooking videos using vegetables/edibles that have performed extremely well in the AAS Trials. These days, a love of gardening is directly related to a passion for cooking. Tying the two together is a natural when marketing joys of cooking with fresh vegetables from the garden and farm market. After 82 years of conducting trials where only the best performers are declared AAS Winners, the organization now has more than 325 individual varieties that have been “Tested Nationally & Proven Locally.” It is some of these many varieties that culinary storyteller, entertainer and horticulture industry veteran Jonathan Bardzik will use in a series of five videos demonstrating cooking techniques with AAS Winning herbs and vegetables. “I am excited to partner with All-America Selections to show people across the country that AAS Winners perform […]

Read More
Burpee Home Gardens Brand Adds Flowers

July 31, 2015

4 Reasons Retailers Snub National Brands

Greenhouse Grower’s lead editor, Laura Drotleff, and I got into a debate about why garden retailers, especially independent garden centers, snub marketing efforts from breeders and growers. She was very much on the breeders’ and growers’ side, expressing frustration about how limited retailers’ vision can be on the topic. I’ve reported on the garden retail side of the industry since 1998, about the same length of time Laura has reported on growers. I’ve heard a lot of retailer views on this, so allow me to share the most common reasons why retailers decline free marketing: Costs. While the marketing materials are free, and sometimes advertising, participating in these projects usually requires minimum orders. From a grower’s perspective, the minimum orders are reasonable. If garden stores promote a plant line, they need to have enough supplies to satisfy demand. From a retail perspective, if inventory reports show a plant line can […]

Read More
llan Armitage Syngenta Starcluster

July 30, 2015

Let’s Talk About Starflowers. Why Is Pentas Not More Popular?

It is good to talk about production techniques, performance results and then to see how our friends garden. Diversity of plant material has always been a strength in American garden centers, and we should never run out of plants to get people excited. However, perhaps people are tired of Petunias or Callas or Geraniums, but we will never run out of options to put in front of them. One plant that is often overlooked is Pentas, a fabulous summer crop for late spring sales. These are heat-tolerant plants, and growing them below 65°F in the greenhouse results in significant delay. Fertility should be at least 150ppm nitrogen, but avoid ammonia in the fertilizer. Plants are best grown at a somewhat higher pH than usual, between 6.4 to 6.8. For best presentation, pinch out the center bud. Side flowers will bloom together, and plants will walk off the shelf. Garden centers […]

Read More
Latest Stories

July 30, 2015

Spread Your Risk Beyond Spring Sales [Opinion]

Growers who participated in Greenhouse Grower’s 2015 Spring Crops Recap Survey said they have had enough of the uncertainty that the weather brings. They said it’s time to build up sales in other seasons like fall so we’re not so dependent on spring. As a couple of wholesale growers, both from the Southeast, very eloquently stated, our industry has mastered squeezing everything we can out of the spring season. And while this year happened to be a very successful one, thanks to the improving economy and elevated consumer confidence, they said, “now is no time to celebrate.” “Spring is still Christmas in the horticulture industry, but we have done such a good job focusing on spring that we have neglected other seasons,” one grower said. “Having so many eggs in the spring basket is dangerous. Fall will never be what spring is, but having a solid second season is in […]

Read More
Berns_Roberto Lopez_Purdue6

July 22, 2015

Cultivate’15 Greenhouse Learning Tour Showcases G…

Growers took advantage of the Greenhouse Learning tour held Saturday, July 11 at Cultivate'15 to see the strategies and technology two successful growing operations are using to tackle production challenges and come out ahead of the game.

Read More
thermoflor

June 16, 2015

Philip Schaafsma To Represent Thermoflor In The U.S.

Philip Schaafsma is a new sales representative for Thermoflor, a company with a lot of experience building garden centers worldwide. The history of the Dutch construction company Thermoflor goes all the way back to 1877. Since then, the company has been through a lot of changes, from simple conservatories to complex glass and steel turnkey projects. With a new sales representative, Thermoflor is well equipped to service the American market. Previously, Petitti Garden Center (Avon, Ohio), Chuck Hafner (Syracuse, N.Y.), Jacob’s Garden (Ottowa Lake, Mich.), Hicks Nurseries (Westbury, N.Y.) and Holes (Alberta, Ca.) were all built by Thermoflor. After a period of absence, the company is now  represented in the U.S. and Canada by Schaafsma, who has more than 40 years of experience in retail lawn and garden, greenhouse growing and the floral industry, and is a former board member of the Garden Centers of America. Schaafsma is the former owner […]

Read More

June 15, 2015

Hortica Insurance To Become Member Of Sentry Insurance …

Upon completion and approval of an affiliation agreement, Hortica Insurance (Florists' Mutual Insurance Company) will become a member of the Sentry Insurance Group, based in Stevens Point, Wis. As a member of the Sentry Insurance Group, Hortica keeps its name and brand and will continue doing business from its current headquarters in Edwardsville, Ill.

Read More
Cal-Poly fields

June 2, 2015

Cal-Poly Students Seek Continued Industry Support To Sa…

Agriculture students and faculty at California Polytechnic State University, San Luis Obispo, want industry members to continue to stand with them in their effort to preserve Class 1 agricultural land from being repurposed. The university recently released an update to its Master Plan that indicates that almost all of its orchards, horticulture facilities and field sites could be repurposed for buildings, including residential and/or recreational space. According to Joel Leonard of Students For Agriculture, an organization of Cal-Poly students in favor of saving the land, the Master Planning Committee will be meeting over the summer to form a final version of its plan and present it once more to the public in the fall, before it is submitted for final approval to the California Board of Trustees. Students For Agriculture’s goal in the meantime is to increase awareness and rally industry supporters to continue to send their input to the planning committee. Visit studentsforag.com to see more […]

Read More
Cal-Poly fields

May 27, 2015

Cal-Poly Students And Faculty Ask Industry To Help Save…

California Polytechnic State University, San Luis Obispo, has released an update to its Master Plan that indicates that almost all of its orchards, horticulture facilities and field sites could be repurposed for buildings, including residential, and/or recreational space. According to a letter from Scott Steinmaus, the horticulture and crop science department head, the proposed changes directly affect the current orchard plantings and other long term plans for the department. The department is committed to making sure that its facilities remain invaluable teaching environments that enable its students to learn about crop, fruit and horticulture production, food safety and pest protection, in addition to providing sites for externally funded research projects that benefit the industry. Industry members are invited to submit comments to the university. According to Steinmaus, a recent eMail to the Cal-Poly community from the university president indicates that all of the input gathered through the end of May will be studied by the planning […]

Read More
people-of-Battlefield

May 13, 2015

Battlefield Farms Receives MPS-A Qualification

Battlefield Farms, Inc., in Rapidan, Va., has been awarded the MPS-A qualification after becoming a participant for MPS-ABC in 2010. After four years of showing effort and improvement, the company has been awarded the qualification.

Read More
Barry_Sturdivant_columnpic

May 8, 2015

How To Survive Succession Planning And Resolve Conflic…

If you work in agriculture, you most likely work with family-owned businesses. This is especially true within the greenhouse industry. I’m fortunate to work for a company that specializes in financing and supporting such businesses. Family-owned businesses often have a level of commitment and support that helps during lean times. This is important for a company exposed to seasonality and events that are sometimes beyond management’s control. Business owners and management are constantly looking for solutions to the unique issues faced by these small but complex businesses. Specifically, how these issues affect the transition from one generation to the next. There are many family enterprise success stories, cases of harmony, health and longevity. Yet it’s no secret that family businesses can struggle with governance, leadership transitions and even survival. According to the Family Business Institute, only 30 percent of family businesses last into the second generation, 12 percent remain viable […]

Read More

April 30, 2015

North Creek Nurseries Welcomes Nikki Drake As New Finan…

Nikki Drake will fill the role of new financial administrator at North Creek Nurseries, with responsibility for the accounting department. She will also serve on the strategic planning committee.

Read More
Andy Huntington Pleasant View

April 29, 2015

Pleasant View Gardens Promotes Andy Huntington to Natio…

Pleasant View Gardens recently announced that Andy Huntington will be the company’s National Sales Manager. Huntington, who has years of horticulture industry experience, will oversee national territory and inside sales departments, while fostering strong partnerships with customers. “Our relationships with customers are central to all that we do at Pleasant View,” Huntington says. “In my new role, I am excited to work with a broader base of broker, grower and retail partners to understand their business needs. Pleasant View’s goal is to be so in tune with our customers that we are able to anticipate their problems before they arise.” Huntington has a history of growing sales and forming long-lasting relationships with a diverse customer base. For the past two years, he has been working as a territory account manager for Pleasant View Gardens, responsible for young plant liner sales in New England and New York. Prior to that, Huntington was […]

Read More
PittMoss on Shark Tank

April 22, 2015

PittMoss Wins On Shark Tank

Mont Handley, president and CEO of PittMoss, appeared on ABC’s Shark Tank on April 17 to try to get the “sharks” to invest in his peat moss alternative. Three investors from the TV show contributed $600,000 to PittMoss for a 35 percent stake in the company. Check out this clip from ABC’s website in which Mark Cuban, Kevin O’Leary and Robert Herjavec discuss getting on board with the product. PittMoss is an alternative to sphagnum peat moss, made up of a mix of proprietary additives and recycled paper rescued from landfill space. Handley founded the Pittsburgh-based company in 1994. What started as a small experiment grew into a full-fledged business with the help of funding provided by an EPA SBIR grant and Pittsburgh’s Idea Foundry. Today, PittMoss is available to commercial greenhouses and nurseries from Michigan to Maine to North Carolina, with plans to grow. To learn more, visit PittMoss’ website, or check it […]

Read More
Syngenta logo

April 15, 2015

Syngenta Names Chris Freeman Senior Key Account Manager…

Chris Freeman is the new senior key account manager for Syngenta Flowers, Home & Garden's Commercial Sales business in the Americas, effective March 2015. Freeman, who joined Syngenta in 2006, carries more than 25 years of experience in the agriculture and floriculture business.

Read More
Lake Buchanan_LCRA

April 10, 2015

USDA Designates Areas Of West And Southwest As Drought …

The ongoing drought has resulted in disaster area designations in counties across nine Western and Southwestern states, including Texas, where some reservoirs are at or near historically low levels.

Read More

April 9, 2015

Altman Plants’ Online Cactus Shop Shows Strong Sa…

Altman Plants recently opened its new Cactus Shop, an online retail store that sells a variety of cactus and succulents. The store is a take-off of Altman’s original wholesale business, as the company started as a mail order catalog.

Read More
Dummen

April 8, 2015

Dümmen Group Welcomes Jim Devereux And Andrew Konicki T…

Dümmen group recently announced the addition of Jim Devereux and Andrew Konicki to its team. They are the newest members of the Key Account and Broker Support team for Dümmen, and will be responsible for building, developing and maintaining current broker and grower customer relationships.

Read More
Gov._Jerry_Brown_California

April 8, 2015

California Institutes First Ever Statewide Mandatory Wa…

California Gov. Jerry Brown announced April 1 that, for the first time in state history, action will be taken to implement mandatory water restrictions, with the ultimate goal of reducing water usage by 25 percent. As Californians are pushed to conserve more, growers will need to think about how demand for products will be affected.

Read More
DNA-logo

March 31, 2015

DNA Green Group Will Acquire Rijnplant

DNA Green Group and Riknplant have finalized DNA Green Group's acquisition of Rijnplant, meaning that the breeding and propagation activities in pot and cut anthurium, bougainvillea and heliconia will transfer to DNA Green Group.

Read More
AFE scholarship_Ryan Dickson

March 25, 2015

AFE Educational Grant And Scholarship Application Deadl…

Apply now for American Floral Endowment (AFE) scholarships or educational grants. Applications can be found online. For educational grants for 2015-2016, applications must be submitted no later than June 1. Scholarship applications are due May 1. AFE will award $40,000 in scholarships for 2015.

Read More