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What is my Ag Lender Looking for?

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Author: 
Joel Larson
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In the current grain and livestock commodity price environment we find ourselves in, it has created some real challenges for producers and Ag lenders. As we work through these economic challenges you may have asked yourself — what is my lender looking for when they are giving a loan to me?
 
Compeer has many factors it considers when a client applies for a loan. Questions used to evaluate an applicant’s character range from subjective questions about their community involvement to more objective considerations, such as payment history.
 
Below are five of the top areas Compeer considers when granting loans. Included with each area are questions that we often ask as a lender. In preparation for working with a lender, think through these questions to identify what areas you might need to strengthen to be considered an ideal candidate.
 
1.  Character 
  • This can be subjective, such as how are you viewed in the community? Are you a good neighbor? Are you active in the community – in a positive way? 
  • Do you have good communication skills? 
  • Does your family have a good history with the lending institution?
  • Character can also be measured by your repayment history. Do you pay your obligations on time as agreed? Lending institutions use a credit bureau score to assess how you deal with your different creditors. A low credit bureau score (<700) may indicate late payments, disputes, or too many accounts. A good credit bureau score (700-800) is an indication that you pay your accounts on time and ultimately that there will be less risk to the lender.
2.  Financial and Production History
  • What do your financial trends say about your business? Are you showing a trend of profitability and net worth growth? Can you explain what is going on in your business?
  • What is your history of capital expenditures? 
  • Are your records timely and accurate? Do you provide your lender financial information that is current and reconciles change in net worth to your earnings? 
  • Do you know your family living expense? 
  • Do you know what the key ratios say about your business? 
  • Do you rely on your lender to put your financials together?
  • What is your acreage production history?
3.  Cost of Production
  • Do you know your cost of production on a per acre or per bushel basis? 
  • If you know your break even, are you marketing from that information?
  • How do you compare to a benchmark? 
  • If you are not profitable in this current price environment what changes have you explored & implemented to get back to being profitable?
4.  Cash flow Projections
  • Do you have a monthly cash flow plan
  • Are you completing actual to budgeted comparisons throughout the year? 
  • If you have a major expansion in mind, do you have a structured business plan that you can present to your lender?
5.  Risk Management
  • How do you deal with risk in your operation? 
  • What marketing tools do you use to reduce price risk?
  • Do you have adequate levels of crop insurance, property & casualty, and life insurance?
  • Do you have a will?
Whether you are a young farmer just starting out your farming career or a farmer with 25 years of experience, these management areas are all important to you and your lender. There is a lot to consider. As most veteran farmers know, it takes a lot of effort to properly manage these various areas. However, there is a significant payoff. Clients who are strong in these areas will benefit from more options and better rates when financing their operations.
 
 
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