It’s no secret that the banking industry has and will continue to change. Bank 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 the experiences of previous generations.
“The days of having the same banker for decades are probably gone,” says Peter Martin, finance consultant at Kennedy and Coe. “Having that advocate at your bank is absolutely critical.”
Martin says now it is up to the customers to teach their bankers about their operations. He suggests analyzing your own financial situation and then being ready to explain it to your bankers. “Otherwise, your banker could start making assumptions.”
Make sure you banker truly understands you and your operation. Martin says this includes your:
- Competitive advantage: Help your lender understand why you are the best at what you do.
- Talents: Explain the strengths and knowledge of you and your team.
- Risks and mitigants: Go to your banker and say here are the risks for you loaning me money and here are the solutions for each of those risks.
- Structure: Describe not only the entities in your business, but also who does what.
- Your future plans: This is critical, especially when you start talking about transitions of ownership for your operation.
Martin says by preparing for and being honest with your banker, you can better your position. “Every time you interact with your lender, their confidence in you should increase,” he says.
A key factor is cash flow. “Bankers need to know your cash flow is sufficient enough to ensure repayment,” Martin says. “Bankers can only be wrong about 1% of the time with loans going bad.”
Martin also suggests studying your operation and determining the best, worst and most likely case for your business. “You need to be able to say to the banker that no matter what happens with commodity prices, you will be able to repay your debts.”
Know and understand your personal banker, he says, but also meet the other people involved in your loans, your banker’s approval chain.
And, although this seems simple, Martin says you need to make sure you meet all deadlines for bank paperwork. He says he has seen clients jeopardize their relationship with their banker, just because they were always late with paperwork.