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9 things your banker doesn’t want to hear – Part 2

Progressive Forage Editor Lynn Jaynes Published on 05 June 2018
farmer and banker fighting over piggy bank

In part 1 of “9 things your banker doesn’t want to hear,” we discussed praying really hard for rain, paying employees cash, winning the lottery, bouncing checks and balance sheets (all such fun topics, am I right?). But I promised you nine items; so true to my word, here are the rest of the things your banker doesn’t want to hear:

The farmer/rancher says, ‘Death loss? You mean you don’t trust me to keep my animals alive?’

Realistic projections don’t allow a whole lot of room for optimism. Your banker will sight in your loan by “shooting low” on income projections and “shooting high” on cost projections. It actually protects the borrower (you), not just the banker. Remember: The loan officer is not the bad guy. His livelihood depends upon you being successful.

The farmer/rancher says, ‘I have a wealthy relative who said they wouldn’t cosign, but you know they would back me’

You can’t skirt the collateral issue. Financial institutions are regulated to the point that a deal “made on a handshake” is a thing of the past. Don’t expect special treatment just because they’ve known you for a long time and you’re an upstanding member of the community. Regulations have changed. Even if your loan officer “knows you’re good for it,” his bank will still require lots of forms and collateral free of liens, serial numbers, proof of insurance and tax returns through a meticulously complicated process. Adjust. It’s the world we live in.

The farmer/rancher says, ‘Accounts receivable? I know she owes me for horse hay, like $800, but she told me her check was a little short, so she asked if she could wait to pay me until after the weekend because she was going to play bingo and win so she could pay me the whole bill’

Accounts receivable can constitute collateral, but not at a 100 percent rate. The bank isn’t interested in being your collection agency, so accounts receivable are valued at roughly 50 cents on the dollar, if it’s an account under 90 days old. (If it’s over 90 days old, you may not be credited with any value at all.) If you want more borrowing power, collect your receivables, thus converting them to 100 percent value.

The farmer/rancher says, ‘I know my finances are a wreck, but if I could just get bigger, it would all pencil out’

The agricultural world has long known that consolidation is and will continue to happen. There is a cost benefit to having fixed costs spread out over more acres, provided the yield is good. And ag loans can be used to grow your business.

Brandy Krapf, Dwight Raab and Bradley Zwilling from the University of Illinois Department of Agricultural and Consumer Economics recently published a report defining characteristics of higher profit farms. The study was run on grain farms (corn and soybeans), over 400 acres in size, and it surprises few people that the more profitable farms had higher yields and were larger farms. Two additional factors were indicative of higher profit farms: those with fewer owned acres (more rented land) and those with fewer combination costs of seed, fertilizer, pesticides, power and equipment.

Investing in growth isn’t a bad argument to present to the banker; in fact, it’s a good argument. But unless you’ve demonstrated good financial management skills, why would the banker invest in a “problem” whose only goal is to become a bigger … problem? If you can demonstrate good financial management first, your banker will be encouraging you to grow.

Cutting costs is another area that farmers and ranchers sometimes approach completely backwards (don’t be offended – most of us learned the hard way). Too often when a banker says, “Your operation won’t cash flow,” he or she will suggest cutting costs. Your knee-jerk reaction is to look first at cutting the big-ticket items – fertilizer or seed (deciding to plant 80 pounds to the acre rather than 100 pounds, for instance). This approach multiplies your problem by reducing yield, and thus reducing revenue even further. Look first at cutting overhead expenses – things like labor, standard of living (gasp), reducing (or eliminating) capital improvements, fixing old equipment or driving the pickup another year. But holey-moley, don’t shoot yourself in the foot by cutting back the things that will impact your yield.

And here’s a bonus tip on the list of “things your banker doesn’t want to hear.”

The farmer/rancher says, ‘Why don’t you come on over for Sunday dinner?’

Friends are cohorts; friends are confidants; friends are amigos and folks you invite to share your hot tub (the one you probably shouldn’t have bought in the first place). Your banker can’t be your friend. Your banker needs to tell you the truth and have hard conversations with you – the ones your friends won’t have. The smile with the grape sucker you get at the teller’s cage is about all the friendliness you should expect to receive. It’s not personal: It’s business … on both sides of the desk.  end mark

Lynn Jaynes
  • Lynn Jaynes

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PHOTO: Illustration by Kristen Phillips, based on a Getty Images photo.

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