Tips to Better Communicate with Your Lender

January 27, 2015 12:01 PM
Tips to Better Communicate with Your Lender

Moving into a year with lower commodity prices, there is peace knowing that lender health is strong across the Midwest, according to Peter Martin, consultant with K Coe Isom and presenter at the 2015 Top Producer Seminar.

A strong banking industry means farmers should be able to borrow money to fund their operations. Martin says that borrowing money comes down to two simple items:

  • Confidence in the borrower’s plan to repay the note.
  • Confidence your team will execute the plan.

To boost your banker’s confidence, Martin says you should present your banker with a thorough, outlined game-plan that highlights your team’s ability to repay the note.

These steps help build confidence in the lending cycle. Martin adds that open and clear communication with your banker helps ensure you have a positive and successful experience. 

Here are Martin’s top tips for communicating with your lender:

Although borrowing money may come easier than in past years, Martin reminds farmers not to underestimate the importance of being proactive in your farm’s finances. Before meeting with your banker, Martin recommends the following steps to help you successfully obtain a loan and help ensure you meet your long-term payments.

Step 1: Know your numbers.

  • True production breakeven
  • Actual living expenses
  • Revenue and expenses already locked in, including inputs.
  • Changes from previous years. For example, bringing in younger generations to the farm, hiring employees, capital expenditures, etc., all play a factor in the farm’s finances and long-term plans.

Martin recommends guiding your farm towards high detail reporting system using available computer software. Document all areas including inputs and expenses on a field by field basis.

Step 2: Create a budget.

  • Create balance sheets, income statements and cash flow reports.
  • Base the budget upon the “most likely” scenario. 
  • The end result should be a debt service coverage ratio of 1.25:1. The required ratio may fluctuate dependent upon your banker, but 1.25 is a good industry standard. The 1.25:1 ratio helps build a budget that shows your ability to repay notes and provide wiggle room for unexpected costs.

Strep 3: Use the stress test concept.

Your budget serves as your baseline projection. Use your budget to plug in different scenarios based upon what could happen to help you better plan projected revenue and expense scenarios. This helps you be proactive and have a plan if revenue falls and expenses increase. Use the stress test so you have enough cushion to weather changes in your plan.

If you foresee trouble in repaying your notes, approach your banker and have an open conversation. However, Martin recommends bringing your blueprint and possible solutions to the table to help make mutual decisions on where to adjust.  

To read more news and find additional information on the Top Producer Seminar or Tomorrow’s Top Producer events, visit


Thank you to the 2015 Top Producer Seminar sponsors:

Premier Sponsors: Advance Trading, Apache Sprayers, BASF, Bayer CropScience, Cargill, Case IH, Dow AgroSciences, DuPont Pioneer, ESN, Farmers Business Network, Firestone, John Deere, New Holland, Top Third Ag Marketing, Verdesian

Co-Sponsors: CliftonLarsonAllen, Conservis, The Gulke Group, K-Coe Isom, Soybean Premiums, Wyffels Hybrids

Supporting Sponsors: FarmLink

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