As credit line increase from thousands to hundreds of thousands into millions, the mental pressure of handling such obligations grows, notes David Kohl, Virginia Tech professor emeritus and a consultant to the Farm Credit System. "Lenders need to look beyond the traditional financial measures that indicate ability to repay."
"As operations grow larger, farm operators need to swing away from being ‘doers’ to being managers," he says. "True managers spend 60% of their time as decision maker, 30% interacting, coordinating and facilitating, and 10% doing. This transition is often a challenge. Delegation and clear lines of responsibility, actions and communication of the vision, goals and day-to-day expectations are crucial for success."
Lenders will be looking for businesses to have a written business plan. And that plan needs to include shock absorbers in the form of liquidity and cash as well as systems, strategies, and standard operating procedures in place for the various components of the business, including production risk management, marketing, operations and even exit strategies. Don’t be surprised if they want to know your plans for profits as well.