It’s no secret that the banking industry will continue to change. Bailouts, regulatory pressure, dwindling profitability and banker turnover are just some of the reasons your trip to the bank for agricultural loans is different from your father’s.
"The days of having the same banker for decades are gone," says Peter Martin, finance consultant at Kennedy and Coe. "Having an advocate at your bank is critical."
Martin says it is now up to customers to analyze their own financial situation and then explain it to their banker. He advises covering these areas to make sure your banker truly understands your operation.
- Competitive advantage: Help your lender understand why you are the best at what you do.
- Talents: Explain the strengths and knowledge of your team.
- Risks and mitigants: Lay out his risks for loaning you money and present solutions for each.
- Structure: Describe the entities of your business and who does what.
- Future plans: Talk about ownership transition for your operation.
By preparing and being honest with your banker, you can better your position. "Every time you interact with your lender, his confidence in you should increase," Martin says.
A key factor is cash flow. "Bankers need to know your cash flow is sufficient enough to ensure repayment," Martin says. "They can only be wrong 1% of the time with loans going bad."
Martin suggests determining the best, worst and most likely scenario for your business. "You need to be able to say that no matter what happens with commodity prices, you will be able to repay your debts."
While you get to know and understand your banker, Martin says, also meet the other people involved in your loans—your banker’s approval chain.