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Have you outgrown your lender?

Don’t let credit limits, poor service or greenhorn lenders hold your business back.

By Joli A. Hohenstein

Relationships have always been crucial in agriculture, and your lender is no different. But what happens if your operation is outgrowing your lender’s capabilities?

“There are a couple of ways you could outgrow your lender,” says Bill York, CEO of FarmOp Capital, a new ag lending service based in St. Paul, Minn. “One could be their ability to fund. … But the biggest concern I would have as a borrower would be the lender’s ability to understand your operation’s strategy, expansion plan and marketing.”

If the lending staff is not well-versed in agriculture or doesn’t understand how producers differentiate themselves, whether with precision ag or non-GMO premiums, then the operation becomes limited in its growth potential.

Frank conversations ahead

“Is your business growing? If it is, have that conversation with your lender about their ability to grow with you,” says Sam Miller, managing director of ag banking for BMO Harris Bank in Appleton, Wis.

Smart producers are already having, at minimum, annual sessions with their ag lenders to ensure an understanding of the farm’s objectives. They should really be maintaining a regular dialogue, says Keith Knudsen, head of Security Bank in Laurel, Neb. “The last thing they want to find out when it’s time for the season is that they can’t get the loan they need to operate.”

Still, many community banks have provisions to grow with their customers. “Most banks have a correspondent bank that will take your overline,” says Ken Hart, community bank president for Illinois’ Peoples Bank & Trust. “A small bank with a legal limit of $1 [million] to $2 million will get set up with another bank ahead of time.”

Being a community bank doesn’t mean they can’t provide larger solutions, Knudsen says. Solid borrowers can borrow more using solutions through Farmer Mac, Farm Service Agency guarantees and ag loans sold on the secondary market.

“Our lending limit is $3.5 million, but we have funded loans double that through these programs.”

Adds Hart: “With the USDA guarantee program, if you make a loan to a farmer, it does not count against your legal lending limit. And local banks usually have an insurance company they can call and be a conduit for the farmer.”

What about service?

Even if the bank makes the numbers work, there’s another way producers can outgrow their bankers.

“We think of outgrowing a bank just from a dollar standpoint, and that’s important, but it’s also service. As small-community bankers, we owe it to our customers to be proactive,” Knudsen says. “The best lenders should be assisting with preparation, cash flows, making sure debt is structured properly, even helping with transition planning and balance sheet assessment.”

“You may be not just pushing the lending limit but also the capabilities of the banker,” Miller says. “Sometimes the banker may be a generalist, and may not understand the intricacies of the advancements in ag, with genetics, precision ag, technology. If they understand, it makes it that much easier.”

Knudsen likens reassessing your lender to going to the doctor and then asking for a second opinion. It’s something you owe it to yourself to do, no matter how difficult. “The toughest thing is that you’ve been doing business with your lender for years in a small community; you sit next to them in church; your kids play ball together. And it’s hard to have that conversation that you need that second opinion.”

Lender relationships are built over time, but what happens if that person isn’t there anymore? You should have a relationship with more people at the bank and ensure they know about you and your business.

Hohenstein writes from Decatur, Ill.

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