Cash flow concerns. Rising interest rates. Increased collateral requirements. Next year is shaping up to be an extension of the financial challenges farmers have been facing for the past four years. Will your lender deem you a sound or shaky financial investment in 2019? Don’t be surprised when your lender asks harder questions during the loan renewal season or is quicker to deny a request.
“A bank has to be just as proactive about our loan portfolio as farmer has to be,” says Jessica Lehman, managing director of agribusiness banking, First Financial Bank in Fort Wayne, Ind. “We can’t just take on more collateral and bury our heads in the sand, either.”
The Warning Signs. When farm loans are showing signs of deterioration, Lehman asks questions around three key areas. First, is the cyclicality of the industry causing the stress? Can the farm weather low commodity prices because there is balance sheet strength? Second, did the bank not smartly structure the loan? For instance, are payments due in August when farmers typically don’t have strong cash flow? Third, what are the underlying issues going on in the operation? Is the owner aware?
“A lot of times it might be all three,” she says. “We want to sit down with a farmer and ask, ‘What is leading us to this point?”
At these meetings, farmers need to be prepared, honest and accountable, says Tina Barrett, executive director of farm accounting firm Nebraska Farm Business.
“Go into your renewal appointment with a plan,” she says. “Have a detailed estimate of your costs for the coming year, a cash flow that makes sense and is grounded in reality and include reasonable spending for family living. If your cash flow shows significant changes from previous years, come with an explanation.”
Also, take a hard look at your operation and figure out why your operation is suffering financially. “It isn’t just because commodity prices are down,” Barrett says. “If that were the case, every operation would be experiencing this stress and they are not. So, what’s different about your operation?”
During these meetings with your lender, ask yourself: Am I with the right lender? “There are so many different avenues you can go,” Lehman says. “Ask about the kinds of products they offer, their lending limits and expertise level.”
If you think your lender may deny your funding request, think through your other lending options. If you have exhausted the Farm Credit system and other traditional ag banks, consider an FSA loan or a non-traditional lender, Lehman suggests. She’s even connected customers with these other types of lending institutions.
Seek out experts to help you through this stressful process. “It may seem silly to be paying professional fees when you are trying to cut costs, but many of these issues are very complex and require detailed expertise,” Barrett says.
How to Cope with Financial Stress
Anxiety, pressure and worry are always byproducts of low or negative profits. They plague you, your family and team. Follow these recommendations to avoid a downward spiral of financial and emotional pain, suggests Val Farmer, a clinical psychologist and author who has specialized in rural mental health during his 30-year career.
- Seek out professional health resources for depression and/or suicidal thinking. Medication and counseling together are extremely important in treating depression.
- Keep the faith. Find help in a spiritual setting or in a support group. Don’t dwell on mistakes or blame yourself for things out of your control.
- Keep the family together. When obtaining a loan is difficult, there is almost always marital discord. Couples need to be mutually supportive and work through their solutions together.
- Don’t put off paperwork to the bank until the last minute. The later you file your loan applications, the greater the chance you haven’t discussed you plans with anyone and haven’t rehearsed their answers or presentation.
Learn more about the pros and cons of non-traditional lending and alternative financing at bit.ly/LendingOptions