There is a lot of cynicism in the borrowing pool about why you should care about being your banker’s best customer. Most farmers ask: What’s in it for me?
A lot, says Peter Martin, KCOE/ISOM, who helps farmers secure financial needs. “If you’re interests are aligned, it’s a win-win for both the banker and farmer,” he says. “Your banker wants you to be profitable. They want to know you are repaying your note along the way. That is the number one thing –are you going to repay that note.”
One major reason a banker wants you to succeed is that most bank portfolios can only allow for up to 2% rate of default of entire portfolio. “I know at times it feels you are at odds with your banker, but generally speaking you are very much aligned,” Martin says. “Years ago, stories are told about bankers walking shoulder to shoulder through good times and bad; no paperwork on the loan, etc. The regulators have changed that. But it’s still a relationship business; if you are on border of being a good loan or being approved, that relationship will make a difference.
Borrowing only takes two things –
- Belief on behalf of lender that your plan for borrowing money and repaying that money is a plan they believe can happen
- The team sitting in front of them, that team is going to execute on that plan.
“Relationship with your banker is not going to turn a bad loan into a good loan, but it will help buffer problems,” Martin says. “Your banker is your partner and should be treated as such. They have a lot of risk in this as well.”
Repayment plans. When Martin helps clients make loans and deal with troubled relationships, this is what he tells farmers to consider:
- What is my source of repayment? “They care about your collateral, but they don’t care near enough about that as they do your ability to repay the note,” he says.
- What evidence do you have to show that repayment source is sufficient?
- Does the banker believe the assumptions driving that plan? Does he believe in the number of acres and the price they have factored into this equation? Sometimes this comes from off-farm income from a spouse who works off the farm. Maybe some other family members who would be willing to step up. What is your plan as a farmer if primary source doesn’t go the way we want, he asks.
Register now for the 2016 Tomorrow's Top Producer business conference happening June 16-17 in Nashville!