Partnering with the right lender
In agriculture, relationships are everything. For the most part, farmers and ranchers don’t like change. And they certainly don’t like change when it comes to the individuals they do business with and rely upon from a business perspective.
These relationships, just to name a few, reside with their input suppliers, equipment dealers, commodity buyers, lawyers, accountants, and most certainly their lender. These relationships are built over time and as comfort levels increase, trust is built, bonds are made, and strong relationships are forged. In some instances, when conditions are right, they can also be generational. So, Ag Lending is exactly that, a relationship business and those relationships are at the heart of most farming and ranching operations. Successful Ag lenders take pride in these relationships and look to become part of the operation. Agricultural lenders strive to learn as much as possible so they can craft financing solutions for each individual operation, as farming is not a one-size-fits-all profession.
So, partnering with the right lender for your agricultural operations can be a major key to success. Finding that lender who gives timely, honest answers for the various situations that arise, one who demonstrates that they really want to partner and assist with the well-being of your operation and finally, one who genuinely cares about those involved in the operation are just a few of the characteristics to look for when choosing a lender. In addition, partnering with a lender who understands the cyclical nature of agriculture is key to long term success. Once the relationship and performance have been established, the lender should have confidence in the management, capability and overall plan of the operation which can differentiate lenders when adversity strikes.
As farmers and ranchers’ journey through their careers, there are certain areas of focus that can benefit them along the way. Listed below are 4 key areas that will help strengthen relationships with lenders:
Areas of focus
Keep good records: Being able to provide good financial records throughout the year will benefit producers over the long run. Balance sheets, tax returns, cash flows and crop yields, just to name a few, are at the top of this list. These items are all critical to the operation and will be continually asked for by lenders.
Know your numbers: Knowing key numbers in the operation will not only help try to minimize them but will also provide confidence and credibility to the lender. At the top of this list are production and living expenses. Becoming familiar with these numbers takes time, but there is no better time than the present. Spend the time necessary to understand these costs. Considering we have been in an era of very thin margins, those who know and control these types of direct costs have the best chances for success.
Save for the future: As we all know, Agriculture is a cyclical business and as the saying goes “cash is king”. When opportunities present themselves, and whenever it is possible, save for downturns in the economy that will ultimately occur. Be prepared to execute the plan over the long term, knowing that sometimes slow and steady wins the race. Developing other revenue streams on or off the farm may be part of the plan. Providing additional income streams that can pay for necessities such as, health insurances, groceries and other living expenses can be an enormous benefit.
Communicate: Communicate early and often, with your lender. Be open with all – the good, the bad and the ugly. Plan at least two intentional visits during the year with your lender either in the office or in the field, to discuss how the year is shaping up. If facing a negative situation, start this process early and provide full transparency that gives everyone an accurate picture, as well as plenty of time to review various scenarios. The more your lender knows the better. Then, he or she can help put together the best plan or suggestions to move forward. Keep in mind when the producer succeeds the lender succeeds, so celebrate the wins!
This list is not all inclusive and doesn’t guarantee success. However, it does provide a framework to operate within. As with all relationships, there are two sides to uphold. The lender has the fiduciary responsibility to uphold, and the borrower provides the raw data for which financial decisions can be made. In my experience, when both sides do their part, a very satisfying, long-term relationship for all parties involved is fostered.
Cole Plafcan is SVP, Director of Agricultural Lending at Simmons Bank.