Squeaky Clean Balance sheets need to be brutally honest

February 4, 2010 07:54 AM

Balance sheets that you submit to your lenders need to be extremely accurate with no hidden surprises, says Jim Kastanek, a dairy business consultant and owner of Total Agri-Business Services, Albany, Minn.

"Lenders are being extremely diligent in the way they assess borrowers' balance sheets, brought on in part by more scrutiny by federal and state bank examiners,” Kastanek says.

"Don't try to hide anything, because any gaps will be discovered,” he says. "And when they are, it will create a real credibility gap between you and your lender that will be difficult to repair.”

List assets at current market value.

If you're unsure, check with your lender on what reasonable and acceptable values are for cattle, for example. While those lower values will reduce your net worth, they will give your lender a far better picture of your true financial standing.

Discrepancies can affect your credit report and credit scores. As scores decline, interest rates will increase and your ability to obtain new loans and even insurance will be affected.

"Recently, I had a client who co-signed a loan for one of his children but didn't tell his lender. When the child defaulted on the loan, it created all kinds of problems for the parent,” Kastanek says. 

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