As combines push to finish harvest, farmers across the country will start preparing for fall bank visits. Despite the most recent Purdue Ag Barometer which showed that farmers are growing more and more concerned about finances, Keith Lane, executive vice president and chief lending officer from Farm Credit Mid-America says many are struggling, but there’s still a lot of financial strength in farm country. At the same time, because of the industry wide economic recession, it will be difficult to secure operating credit. “This isn’t as much fun as it was a few years ago. It can be frustrating,” Lane says. “Be early, talk a lot and assume good intent.” We asked two bankers to provide questions that can help you start critical year-end conversations with your lender. Here’s part one in a two part series.
What do I need to be prepared for the loan renewal discussion? “When you ask this question, it should lead to a discussion about the specific financial information that would be needed to process your loan,” Lane says. “Knowing what documents and questions you need to answer will speed the process.” During a low cycle, like the one agriculture is currently experiencing, borrowers can expect a deeper analysis to be required by the bank, Lane explains. “You could be asked for documents you’ve never been asked for before, and you may be asked questions you’ve never had to answer before,” he explains. “Don’t be offended. It’s important to remember that we’re all the same people we were three or four years ago.”
From what you know about my operation, what differences do you expect for next year? Your lender’s loan committee, or whoever they report to, could require a little more collateral than they have in the past, or there could be loan covenants that there haven’t been in the past. “Asking that question helps the farmer prepare to have the conversation when it comes down to the lender asking for those things,” Lane says. “As the downturn progresses and lasts, there are several things that happen, but the trends are all negative. Working capital is dissipating, owner equity is holding up because of land values but is still a little bit less, and lenders will have to do a little bit more in order to continue to finance the operation. The earlier that conversation can get started the better.”
What do you perceive as the strengths and weaknesses of my business and what do you see from other clients as to how I can improve? “One of our bankers asked me to come to a team meeting with one of his dairy clients to give them an update of what I’m seeing in the ag space,” explains Sam Miller, managing director of agriculture lending for BMO Harris Bank. “Then they asked me this question. They said, ‘Well, you've known us for 20 years. What do you see as some of our strengths and weaknesses?’ And then they asked, ‘What other things are people doing that maybe we should take a look at?’ That’s the sign of a responsible, progressive borrower that is willing to do what it takes to be here for the long haul.”
Can I attain 100% of my financing needs from you? When times were good, everybody was in the farm lending business, including vendors, Lane says. While many farmers take advantage of borrowing money from the people they buy inputs from, it’s important to know that type of financing can go away. “That company’s main business is not lending to farmers,” Lane says. “If they start to experience some slow payments are they really committed to stay with that?” Ask your primary lender if they are willing and able to lend you everything you will need to operate.
Check out Part Two of this series.