When You Outgrow Your Lender

October 31, 2012 06:17 PM

Learn to ask the right questions ahead of time

If it hasn’t happened to you and you’re in a multiyear expansion, it’s going to: You’ll bump against your lender’s limits. Does that mean you should scour the bushes for a new lender? Not necessarily, but you should know what your loan officer plans to do.

"Have the conversation about increasing credit needs before a deal [for expansion] is on the table," says Keith Lane, senior vice president of agribusiness at Farm Credit Services of  Mid-America. Sit down with your loan officer and review your goals for the next five years. Ask him how he can meet your needs. If he needs other lenders to participate in expanding a credit
loan, it’s appropriate to ask who his partners would be and the financial health and loan standards for such institutions.

Loans have become so large that several lending partners can be needed. Even though Lane might
be able to make a $50 million loan, in some cases a loan of $3 million to $5 million requires  additional partners to make the deal.

What’s This Mean? Additional and more frequent reporting, such as increased accountability and detailed financials, will be required. It’s possible, Lane adds, that farmers will bump up against multiple limits. These can include regulatory, bankimposed, agriculture-specific and individual loan limits.

For example, a lender might adjust its specs, changing its exposure to farm lending, says Bob
Aukes, a farm financial consultant. Some lenders are notorious for entering and exiting   agriculture. Farmers therefore need to inquire about the history of their lender’s exposure to agriculture.

There are a number of reasons to change. Aukes advises to always be talking with at least one additional lender, comparing rates and options in case a switch is needed. However, don’t switch lenders for a 1.5% lower interest rate, he says.

While the reporting requirements are onerous, this financial information will only prove beneficial. "In my experience, fewer than five producers out of 100 do an adequate job of budgeting," Aukes says.

Not Just Big Versus Small. In one case, a producer and Aukes found themselves dealing with a large bank that was changing loan officers yearly. Each season, a different loan officer had to be educated about the farm. Additionally, they were not comfortable with a junior loan officer taking
their request to the loan committee.

But lender size isn’t the only reason for a switch, Aukes says. It’s all about relationships; the loan officer is more important than the size of the institution.

"If the goal is to bring a daughter or son back to the farm, your loan officer needs to understand your farm’s history, regardless of his institution’s size," says Keith Geis, president of Platte Valley
Bank in Wheatland, Wyo.

Circumstances occur when a farmer might need to find a larger lender, but this is a decision that needs to be thought out carefully, Geis adds. "There are reasons that are hard to quantify."

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