Your lender will need to see some financial records, but beware of repeated requests for information.
By Joel Harlow
Read part one of this three-part series: How to Choose the Right Lender
Agricultural operations can be simple or they can be multifaceted and complex. You need to be prepared to provide your bank with financial records including IRS returns, profit and loss statements, balance sheets, and a plan of operation (if you are expanding or changing your operation) that shows the financial impact. The more complex and diverse the operation, the more information the lender will need. If the operation is a partnership or corporate entity, be prepared to provide tax returns and balance sheets from the owners of the entity, as well as the entity itself. A lender must be able to project a cash flow and know the financial strengths and weaknesses of the corporation or partnership and its owners.
On a smaller operation, which is typical in my area of the state, farming operations are usually shown on the personal tax returns under a schedule F, and I can get by with a good financial statement on the owner and two to three years of tax returns. However, I have financed multi-million dollar operations that were much diversified and may have as many as 20 owners. These types of producers are usually accustomed to the drill and will have everything that is needed. I typically want to see a copy of the entity’s bylaws and corporation filings, as well as engage in a detailed discussion as to what the operation wants to accomplish. It will save you time and aggravation if you will give your accountant permission to provide the needed information and visit directly with the loan officer regarding your financial records.
From a banker’s standpoint, when a request for credit is received, they want to make the decision as quickly as possible and move on to something else. Time is money. Over the years I have dealt with many loan requests where I have literally had to drag out the information from the producer. One phrase that is a hindrance to me is when a producer says, "You already have that information from my last loan." Well, yes, I may have financials from two years ago, but these are useless in considering a loan request today. Believe me, if I don’t need the information, I won’t ask for it.
I have heard complaints from producers who feel the bank is taking too long to act on their request. Almost always, this is due to the producer not providing requested information to allow for a loan decision. Once the initial loan is made, the amount of information needed will decrease, but a producer needs to be willing and able to provide what is needed, and this may be a relatively substantial amount of information on the first loan.
From the producer’s standpoint, if a banker asks for information and then comes back several times asking for additional information, this is a red flag. A good loan officer will take an application, go through it and make a list of needed information to make the loan decision. If a loan officer is constantly asking for additional information during the application process at different intervals, this is a sign that they may not understand agricultural lending and do not know what they really need to make a decision. I always make the list of what I need and check it off when it is received. The only time I call for information a second time is when the information initially requested was not furnished.
Joel Harlow has 30 years' experience in agricultural banking. He is executive vice president of First State Bank of Ben Wheeler in Van Zandt County, Texas.