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12 Bad Habits to Break When Working with your Lender

Date: 
Author: 
Ahnna Compart
Educational Opportunities: 
Articles
Interests: 
Grain, Dairy, Swine, Beef, Timber, Renewable Energy, Young, Beginning Farmers, Emerging AgriBusiness
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We’ve all read articles on what lenders are looking for from clients, including providing them with up to date financials and cash flow plans for the upcoming year. In order to build a stronger relationship with your lender and help ensure a more expedient loan process, here are 12 behaviors to avoid when working with your lender, and how to correct them.
  1. Not taking responsibility or being accountable for what happens in your operation
    • Rather than blame everyone else or coming up with  excuses for what went wrong—prices, yields, break-downs, etc., take ownership and be willing to learn ways to protect your operation.
  2. Provide incomplete, inadequate, or poor quality financial information
    • Spend the time to ensure all information provided is complete and accurate.
    • In order to provide the most accurate financial picture of your operation, provide year-end financial statements which reconcile year-over-year to accrual adjusted earnings.
    • Take steps to improve your financial reporting annually; having high quality information is key to managing your operation.
  3. Not having a projection and cash flow plan for the upcoming year
    • Don’t assume that you will have all the same expenses as you did the previous year.
    • Although benchmarking is a valuable tool, be sure that you are using your historical information and not simply using a number your neighbor said.
  4. Not knowing your cost of production
    • Continually look at how your cost of production may change throughout the year, calculate it as you incur expenses for the crop.
    • Cost of production impacts many aspects of your operation, don’t simply guess when it is time to market your crop. Be confident in knowing your cost of production and what you sold the crop for.
  5. Not having a marketing plan or unable to explain it
    • Not having a plan is a plan, just not a very good one.
    • Understand the impact that pre-harvest marketing has on your bottom line.
    • Be able to explain your option strategies if you are using options.
  6. Unable to explain your business
    • Know how many acres your run, pigs you feed, etc.
    • Be able to explain how you make business decisions.
  7. Not making changes in the operation
    • Do not expect the lender to do all the work to make your operation profitable, your lender only controls one of nine cash flow drivers, finance structure, you control the rest.
    • Doing the same thing year after year will not produce different results; look for changes you can make in your operation that will impact the bottom line.
  8. Not doing what you said you were going to do
    • Stay true to your word and hold yourself accountable to the things you agreed to with your lender.
  9. Having too many non-income producing assets
    • Be conscious of what your assets do to your balance sheet.
    • Having a new house, cabin, snowmobile, ATV, etc. may be appealing, but be aware of how they may impact your finances.
  10. Having a bad credit bureau report
    • A bad or low credit scores are those under 650.
    • Take care of any charge off accounts that may be on your record.
    • If you have bankruptcies on your record, securing financing may be more difficult.
    • Avoid having large balances of outstanding credit card debt.
  11. Living outside of your means
    • Be knowledgeable on how much you spend on family living.
    • When margins are tight, be cognizant that spending habits may need to change.
  12. Not being forthcoming about your operation
    • Be honest with your lender, and disclose any and all liabilities. Do not overstate or understate aspects of your business—acres operated, inventories, etc.
    • Report cash income on your taxes.
Often we spend our time working on the day to day and production side of the business and don’t spend enough time working on the business, the management side of the operation. As you read this, if there were a few things you thought applied to your operation, make it your goal to improve those areas this year. Your lender should be viewed as a trusted financial partner in helping your operation succeed. However, it is a team effort on both sides of the table. By understanding which habits to avoid, you can help streamline the lending process and build a trustworthy relationship between yourself and your lender.
 
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