For farm and ranch owners, your lender is an indispensable partner for your business and critical to the success of your operation. The key to successfully working with your lender is to realize it is an important relationship where mutual trust is necessary. But sometimes it’s not easy to know how to move forward, so we’ve put together six tips on how to build or maintain an optimal relationship with your lender:
1. Build Honesty and Trust
These are essential components of any sound business relationship. The borrower deserves to know if and when the lender is concerned with the business while also providing assistance and advice toward the resolution of any issues. In turn, the lender needs to learn about financial difficulties directly from the borrower and on a timely basis.
2. Maintain Communication
Communication is essential, and, as with any relationship, this is a two-way street. One expects their lender to return calls or other forms of communication on a timely basis, and the lender expects the same. In my 25-year career as a lender, in attempts to get in touch with the borrower, unresponsiveness was almost never a good sign. If you have concerns, it’s best to address them right away.
3. Be Punctual
Be as punctual as possible to information requests from your lender. The lender needs quality and thorough information from the borrower to competently manage the relationship and to be an effective advocate for the borrower. Excessive delays in responding to these requests tend to be more common among borrowers experiencing financial difficulties.
4. Provide Essential Information
Provide the lender with your operating plan and financing needs for the coming year. Assumptions for financial projections need to be supported with yields, prices and other performance information that is realistic. The plan should include a risk management component that addresses marketing, crop insurance and cost control strategies.
5. Make Use of Their Expertise
Leverage your lender’s expertise by asking for their input on means available to help ensure the success of your operation. Discuss trends of your operation (both positive and negative), what is driving these trends and how they will impact your operation going forward.
What is the lender’s commitment to agriculture, level of agricultural finance expertise and finance “tools” and options available to help in navigating through a period of financial stress?
Of course, you should also consider reaching out to your accountant for their insights on managing risk and optimizing the financial performance of your operation. Meetings between the borrower, lender and accountant can be beneficial if there are major decisions that need to be made.
6. Pay Attention to Working Capital
Be attentive to working capital, the difference between current assets and current liabilities of the business. Some ag economists refer to working capital as the first line of and best “defense” against financial stress, and ag lenders tend to watch this very closely. What is the status and trend of this component of your financial condition, and, if declining, how can it be improved?
Do You Have a Solid Relationship With Your Lender?
Sound relationships with business partners, particularly lenders, are key to the ongoing success of any business. Using the practices discussed above will help ensure the continuation of favorable relationships with your lenders going forward. If you have questions about the information shared in this blog, contact me at email@example.com or 815.626.1277. With dedicated professionals committed to agriculture, we are always ready to assist you.