Communicating with Lenders: Suggestions for Famers & Ranchers

The last few years have been tough for many farmers, feeders and ranchers due to a cost-price squeeze. I reviewed the 2015 Nebraska Farm Business INC financial standards measures. Average 2015 Net Farm Income was $51,293 which doesn’t sound terrible until you get deeper into the numbers. The farms are broken into 10 equal groups, deciles, ranked by Net Farm Income. The bottom four deciles of farms were unprofitable with the lowest decile averaging -$109,508 net farm income. At the beginning of 2016, the bottom three deciles had negative working capital with the lowest decile averaging -$244,880. The numbers above and the current cost-price squeeze will probably worsen the financial position of additional farms and ranches. Fortunately equity has increased for many farms and ranches and that can be used to shore up current lending needs. Communicating with lenders  will be an important activity over the next months. Here are suggestions for that conversation’s success.

  • Always be upfront about the exact situation, sooner rather than later. Be frank about what your financials are but don’t talk with the lender constantly.
  • Make sure that all your financial documents are accurate. Include all machinery leases or outside lending listed on the correct financial documents. Consider producing a farm and personal balance sheet including credit cards on the balance sheet.
  • Do your own cash flow projections for 2017 now. A cash flow projections allows you to discuss your needs with your lender. The process of making a cash flow projection can be very illuminating to operators. The cash flow projection can guide marketing plans as well. Update the cash flow periodically during the growing season and share the update with your lender.
  • Explore marketing plans, write one and implement it. Again marketing plans should be flexible as new information comes forward. Again share your marketing plan with your lender.

The foregoing suggestions show a borrower that is proactive and forward-looking which is a very positive asset that lenders want to see. Be proactive!

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