Seeing beyond the numbers
1. Do you have a weakness for new equipment?
It’s easy for new equipment purchases to get out of hand when dealers offer low or zero interest loans on new equipment sales, but too much spending can severely hamper your ability to pay your debts. With current commodity prices, there isn’t much left after paying equipment loans. Lenders don’t need to ask this question, because one look at your balance sheet and a walk around your farm will usually answer this question.
2. Are you taking care of what you have or is maintenance lacking?
The condition of the farmstead may not result in your loan getting turned down, but a well maintained farm is usually an indication of management. Lenders aren’t looking for new buildings – just buildings that look like they have had a coat of paint in the last 20 years and grass that gets mowed on a regular basis.
3. Is your herd happy and well fed?
Again, this can usually be evident just by walking through the barn or pasture.
4. How many new toys are in the garage or barn?
I toured an operation once where the producer had two helicopters, speed boat, four snowmobiles, horses, multiple four wheelers and two trophy cars. Granted this is extreme, but it is a concern on an operation were cash flow is tight. There is nothing wrong with toys, but constraint is the key.
5. Is your goal to be bigger or more profitable?
Make sure you aren’t expanding to impress the neighbors. Expansion should be well thought out and improve your profit margin.
6. Are there oil stains on the ground around your shop?
What are the tall weeds behind the barn hiding? Abandoned equipment, empty barrels and chemical containers may be a sign of environmental issues.
7. Do you understand your balance sheet?
How quickly can you supply the needed information? It is important that you have a good grasp of your financial situation when discussing it with your lender.
8. Are your projections reasonable and supported?
You’ll need to provide the detail to support the projections. If you are projecting a big swing in income – provide well supported documentation for the change.
9. What is your lender turnover rate?
How many times have you moved banks in the last ten years? If you have moved banks five times in the last ten years, there is a good chance the problem wasn’t with the lender.
10. Is your only marketing plan “buy low and sell high?”
Lenders want assurances that you have a marketing plan and if you don’t have the discipline to do it yourself, that you have hired someone to do it for you.
As a lender, one of the best parts of my job is getting to meet with my customers at their farm to see their operation and get to know them, but it is my responsibility to see beyond the numbers and make sure we are lending to good managers.
Kathy Daily is the senior vice president of First Financial Bank’s Farm and Ranch Division. (www.ffb1.com)
