Everyone knows farmers are struggling. Between trade wars, supply issues, rising input costs and low commodity prices, agriculture has a lot of stress associated with it these days. One additional stress most farmers endure is knowing whether or not they will have access to operating capital in the future or, if an opportunity for expansion arises, will they have a lender who will work with them to take advantage of that opportunity? Kentucky Farm Business Management recently shared the following tips for working with your lender to help foster great working relationships to benefit both the farm and the lending institution.
It can be intimidating for anyone to communicate with financial institutions. Farmers often need to communicate with bankers about operating loans, so here are a few tips to make it a more positive experience.
First, know your numbers. Be prepared to talk about revenues, margins, expenses and cash flow. Have income statements and balance sheets with you before you start the conversation. Bankers still look for sufficient collateral, a good debt-to-income ratio and a solid payment history, so having all the information ready helps you have a more successful meeting.
Cash still is king. Be ready to talk about your cash flow management when talking with lenders. Cash flow is the total amount of money transferred into and out of a business. Bankers want to know about your cash flow and how you will repay the loan. Keep in mind profit does not equal cash flow.
Bankers want to see a disciplined individual who can stick to a budget, so limit cash distributions. Be cautious about the impact of personal spending on your farm operation’s financial picture. Family living expenses have become a line item that quickly can get out of hand and a lot of producers don’t know exactly how high their family living expenses are.
If you see a problem coming, be honest and let them know about it. No one knows your numbers more than you. It is to everyone’s benefit for the farm to succeed, so if there is a problem, most lenders are more than willing to work with you to get through it. Also, find where your strengths are and share those with your lender. Maybe it’s agronomics. Maybe it’s marketing. Whatever it is, share those with your lender and share examples of how you’ve succeeded in those areas.
On the other hand, identify your weaknesses and share those with your lender as well. Ag lenders know a lot of people and probably can recommend someone to help you in those areas or may even be able to mentor you themselves.
You can have a great relationship with your banker. Just remember to be open about your numbers and cash flow and control your personal spending.
For more information about farm finances, contact the Hardin County Cooperative Extension Service at 270-765-4121.