Having all required information helps keep the ball rolling
Have you ever applied for a loan only have it sit on your lender’s desk for days without an answer? Chances are this has happened to you. The reason for this could be the obvious- your lender is busy with other applications or possibly out of the office. There isn’t much you can do about this other than letting your lender know up front that you need an answer by a certain date so they can make better accommodate your request.
More often than not, the reason for the delay is due to incomplete or inaccurate information that you provided your lender or your lender doesn’t have a clear picture of your operation. The quality of the information provided to your lender has a direct impact on whether or not your loan is approved. By providing the following information, you can help to ensure you get your answer sooner:
1. Detailed Balance Sheet that is within 30 days of being current. I can’t stress the word “detailed” enough. If you operate as an entity, you will also need to provide a personal balance sheet.
a. Assets – Don’t forget to list everything. Just because you list it doesn’t mean the lender will take a lien on it, but if you owe more than you own- a bank isn’t going to loan you more money.
• The most often omitted assets are cash in the bank, accounts receivable, investment in growing crops, prepaid expenses, and the value of your home. These items can be significant.
• Provide copies of your latest bank statements. Lenders can’t just take your word for what you list. They will need to verify the information. If you can provide them with a statement, you can save them time.
• It is also important to list your property owned, including who has a lien on the property.
• List crops by type, quantity, unit and estimated price. Example: Corn – 75000 bu @ 3.75/bu = 281,250. List livestock the same way. Be sure to break out breeding livestock from market livestock. Also provide weight and price per pound values.
b. Liabilities – In order for a lender to know if you can repay your loan, they need to know the terms of all of your other loans.
• Don’t forget to list credit cards and lease payments.
• Provide payment amount, due date, interest rate and maturity.
• List how each loan is secured.
• Don’t forget to list loans you have co-signed for others.
• It is helpful to provide the lender with a copy of your latest statements, if they are available.
2. Historical Balance Sheets – I always ask for a couple of older balance sheets so I can see how the operation has changed over the years.
3. Income and Expense Projections – If your operation isn’t changing, your lender will generally use historical averages. If the new loan will be accompanied by changes in your operation, you will need to provide income and expense projections to account for the changing operation.
4. Credit History – Be upfront about any late payments or problems that will show up on your credit report. Discuss why the problem occurred and what you did to correct the problem.
5. Corporation and Partnership Documents – The lender needs to know who has the authority to sign on behalf of the entity. Provide copies up front.
6. Federal Tax Returns – Provide complete copies of your federal tax returns with all of the schedules for at least three years. Some lenders may want four years, but usually three will be enough. If you have had a difficult year, it may be helpful to provide an additional year so that the lender can see how a typical year looks.
7. Production Records – Your lender is going to look at past income and expenses. Providing them with yield history, acres farmed, and livestock inventory numbers will supply them with a lot of answers to explain fluctuating income and expense numbers.
8. Operation Description – This is probably one of the most important things that you can provide your lender. This document should be an ongoing document that you add to or revise each year. This document should:
• Give your history and how you got started farming. Discuss your experience and ability to manage your operation.
• Discuss your succession plans.
• Present major changes in your operation and when they occurred. This would include transfers of ownership, buying or selling of land, medical, or family crisis that had an impact on your operation.
• Show how you make your income – whether it is from crops, livestock, or another source. Also indicate where you sell your crop and any measures you have taken to lock in prices.
• Express any niche that you possess that gives you advantages over your neighbors.
• Discuss your reputation for repaying your debts. If you have restructured debt, filed bankruptcy, have judgments against you, or have late payments explain the circumstances fully.
• Include who prepares your financials and production records.
• List any plans or goals for the next few years. This will help to make sure your loan is structured the right way to help achieve your goals.
• Disclose your trusted advisors and/or mentors.
You may look at this list and think, “My lender knows my operation so I don’t need to provide all that stuff,” but what happens if your loan officer leaves the bank? Someone new will need to get familiar with your account and they will be glad you were prepared. Your lender also has more than one loan to keep up with, so if he/she knows you always provide good information, they are more likely to move your loan to the top of the stack. Chances are your lender will still have some questions for you, but providing this information up front will save you a lot of time.
Kathy Daily is Managing Director for the farm and ranch division at First Financial Bank. (www.ffb1.com) Mrs. Daily has been an agricultural lender for over 25 years. To contact her, phone 888-398-4119 or email her at [email protected].
