Is it a chore to get ready for a meeting with your banker? Do you dread the meetings with your lender like others do going to the dentist? I hope by the end of your reading you will have a better perspective on what your lender needs, wants, and frustrations are to make your next visit a breeze!
My name is Tanner Winterhof and I have been an Ag Lender in Central Iowa for nearly 16 years now. I grew up on a hog farm with row crop acres and married into a family that raises fat cattle and also farm row crop acres in Central Iowa. In every meeting with my farmer clients, I relate back to my experience on the family farms and tie in my education in financial services to help make those meetings efficient and successful.
If you are like most farmers and ag business owners out there you probably talk with your lender fairly frequently throughout the year, but it seems like only once do you dive deep into the numbers. This can make it nerve-wracking and overwhelming as you try to remember and summarize a full year of hard work. My first piece of advice would be to start breaking the workload down into quarterly meetings. You’ll see why here in a second….
ITEMS TO PREPARE AHEAD OF YOUR BANK MEETING
During the time of annual review, your lender will want to review the following items. It could be more and might be less, but the next list will cover the basics.
- 3 years of tax return history
- If the farm is a corporation this would include personal and business returns
- Completed balance sheet with schedules
- The target is to have this reflect a date within 30 days of review
- Completed cash flow projection
- This is for the upcoming growing year or calendar year
Now, how the lender obtains this information is different amongst all financial institutions. Some lenders have electronic options that allow you to work through an excel spreadsheet or a program that will ask questions to step you through the process. Others resort to pen and paper updates from the previous year’s records that are compiled either on your own or with the lender in their offices. Either way, the summary can be worked on throughout the year. For example, if you as the farmer or business owner take notes when a piece of equipment is purchased or sold, this practice is less stressful and more accurate than remembering at the end of the year.
If you are in a situation where the communication with your lender is minimal between meetings then it is a good idea to over-prepare for requests that may come. Your lender will ask about your grain or livestock sales records during the last year. They will want to know if you are holding any current market positions on inventory or pre-sold positions for new crops/livestock. Another question to anticipate is on the money owed to you, accounts receivable, and the bills you have assessed and have yet to pay, your accounts payable. Those items listed along with major capital purchases and sales will cover most of the basic questions in your meeting. Of course, your own situation will dictate what more information the lender will require or request.
Ultimately, getting down to the grassroots of a good relationship with your banker is the ability to communicate. This communication must go both ways but is essential to success. If you have thoughts about buying a new tractor, a new farm, or a group of cattle, reach out as soon as you can to discuss it with your banker if it requires borrowing. Also, in return, you should be able to expect your banker to do the same thing for you. If they know a loan is coming due or a report is required for their file they should be contacting you early on to give you as much notice as possible. This also gives you the opportunity to ask exactly what your banker is looking for. Most will rely heavily on cash flow margins, but some banks like watching net worth trends and debt-to-asset ratios as well. By asking you will eliminate any questions and know what to focus on.
Continuing along the lines of communication I firmly believe a good lender will alert you of positive opportunities to refinance or restructure your loans. However, I know there are many lenders who are overwhelmed with their workload or even considered subpar. This makes it your responsibility, unfortunately, as the borrower to ask for those opportunities. When I mention restructuring, I am referencing the opportunity to shift short-term variable-rate debts into longer-term fixed rates protecting your interest rate risk. The refinance opportunities would be to assess your long-term fixed-rate loans and look at lowering those rates or extending the fixed-rate period.
POSITION OF POWER
Let’s talk stereotypes. I don’t like them in general, but we all know they stem from a period of time or a group of people that actually make them true. One stereotype around lenders or bankers is a position of arrogance or power. This is unfortunate, but when a person controls a decision around access to money it can provide a wrong frame of mind for keeping your best interest in mind. I see two clear ways to combat this stereotype if it applies to your banking relationship. The first step is to earn their respect or gain their trust to show you are proving them wrong (if they are limiting you) or prove them right (if they took a chance on you). By gaining their respect you enter in on an equal playing field rather than one of control from either side. Make sure you come to the meeting with a well-thought-out plan about how you will generate a profit and repay their loan. Provide resources supporting your plan such as industry research, historical trends, and cash flow projections. Then focus on those details and carry out that plan as discussed.
The other way is to create competition. What started as a sales technique for me has now become a true belief. I feel every farmer or business owner should have a banker on the bench. What I mean is to start building a relationship with another banker. Be upfront and honest with them that you want to start to build respect and a reputation with them. You can do this by sharing the same financial information with them for review, getting their feedback, and even discussing rate options. This will give you ammunition and confidence for the meeting with your banker to do the actual lending. The only way to make the banker on the bench concept work is to be upfront during your meetings. Don’t be rude a dangle a carrot of business that isn’t there but explain how this will help you to earn their trust and provide them an opportunity in the future!
It comes down to one key concept and that is to communicate well. Whether this is about goals and expectations or about the successes your farm has had it is important. The same goes for if it is with your current banker or the new banker on the bench. Be clear with your message and you will be off to a good start!
Further content at Farm4Profit Episode 36 – Preparing for a Successful Meeting With Your Banker
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