In Tight Ag Economy Make Sure You Know Your Lender

relationship-with-ag-lender

For many farmers, harvest is well underway and something else in the ag industry has gotten a multi-week jump start. HAT recently spoke with Bill Johnson,

President and Chief Executive Officer of Farm Credit Mid-America. He said during the current business cycle relationships with your lender are extremely important.

“The earlier you can have those conversations once folks know what their yields are going to be, know what their operating needs are for next year, the sooner the better. That gives everyone more options to work through as well as we’re seeing some things this year, folks who maybe haven’t had operating loans in the past, who have operated out of cash the last few years are coming in and setting up operating loans just in case. So if they have opportunities to make some purchases before year end, or if they want to hold their grain over until the first of the year to sell that. So we’re seeing a lot of activity already this year, which is 30-60 days earlier than normal.”

Johnson advises you to have year-end financials prepared as early as possible in the new year to help your lender assess your financial situation as you explore the availability of credit.

“One of the things we do now is really look at what we refer to as a burn rate analysis,” he explained. “When you look at the earnings off of the operation, how many years can someone survive in their current financial condition and last through this economic cycle. So the importance of working capital and having cash on hand, or inventories as it relates to that. Being able to look at their overall structure of their debt. Many people have bought equipment in the last few years with cash or with short term loans whereas maybe stepping back today and looking at maybe terming that out over a period that’s more related to the length of time that they’ll own that piece of equipment.”

What it amounts to is rebalancing of debt load and he said they’re doing a lot of that now at Farm Credit Mid-America. Johnson said their staff is well prepared to ask the difficult questions that can help position a farmer for not only the coming year, but the longer term future as well.