Securing the financial needs of a farming operation has changed significantly over the years. Lenders are requiring a better understanding of your operation and what the repayment ability of the operation looks like. As a lender, we must also demonstrate to our regulators that we understand the operation’s ability to repay debt. The better prepared you are to meet with your lender, the stronger the lender-producer relationship and communication.
Think of your lender not as just as a loan officer, but also a sounding board, a resource for ideas and solutions, and a regular resource for a neutral assessment of your business and financial strategies. Establishing a relationship with your lender is key. Your lender wants you to be profitable and needs to understand your plan of execution.
Having organized and detailed financial information can work in the producer’s favor. Lenders expect and appreciate touching base regularly throughout the growing season to stay informed of crop and livestock conditions and marketing plans. The lender also maintains a certain amount of risk in the relationship. The lender and producer will benefit from understanding each risk tolerance. As you prepare to meet with your lender, below is a list of items you should have available and be prepared to discuss. This will help you be proactive instead of reactive.
- Most recent tax return and depreciation schedule
- Updated balance sheet
- List of all loans, including terms, rates, and payments
- Yield history for each crop
- Marketing plan
- Crop insurance documentation
- Projections and budgets for next crop year or livestock cycle including fertilizer, chemical, and seed costs, rent expense, and cost to raise/produce that animal.
Topics of discussion
- Previous years results or issues that challenged the operation (machinery, storage, weather).
- Anticipated operation changes
- Future goals
- Succession plan if applicable
For you and your lender to navigate your relationship most effectively, transparency is the best policy and talk to your lender about any concerns or issues you see facing your operation. A lender’s probing questions are to help them better understand your situation and to assist in finding solutions. It is equally important to reach out to your lender to share when things are going better than expected. Lenders enjoy hearing from their producer several times a year.